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Oil Prices and Monetary Policy in Emerging Markets: Structural Shifts in Causal Linkages

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  • Saban Nazlioglu
  • Alper Gormus
  • Ugur Soytas

Abstract

This study tests the causal relationships between oil prices and monetary policy for the emerging markets (Brazil, India, Indonesia, South Africa, and Turkey). In particular, we explore the role of exchange rates, inflation, and interest rates. First, we utilize the commonly used Toda–Yamamoto causality framework and later augment the model to account for structural shifts—including gradual/smooth shifts. The empirical findings show that (i) accounting for gradual structural shifts matter for the causal linkages between oil prices and the monetary policy variables and (ii) employing a bivariate or multivariate frameworks is not important (with few exceptions) as much as controlling for structural breaks in these causal linkages.

Suggested Citation

  • Saban Nazlioglu & Alper Gormus & Ugur Soytas, 2019. "Oil Prices and Monetary Policy in Emerging Markets: Structural Shifts in Causal Linkages," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 55(1), pages 105-117, January.
    • Handle: RePEc:mes:emfitr:v:55:y:2019:i:1:p:105-117
    DOI: 10.1080/1540496X.2018.1434072
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