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Oil Price and Exchange Rate Behaviour of the BRICS

Author

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  • Afees A. Salisu
  • Juncal Cuñado
  • Kazeem Isah
  • Rangan Gupta

Abstract

We attempt to predict the exchange rate returns of the BRICS (Brazil, Russia, India, China, and South Africa) countries with the global oil price using monthly datasets covering the period of 1973 to 2020. We formulate a predictive model that accounts for the salient features of the predictor and the predicted series in line with the recent literature. We establish that oil price is a good predictor of exchange rate returns for both net oil exporters (Brazil and Russia) and net oil-importers (South Africa and China). The consideration of asymmetries improves the predictability of an oil-based model for exchange rate movements and ignoring the same may lead to wrong conclusions. Finally, all the variants of the oil-based model outperform the benchmark model albeit with higher out-of-sample forecast gains with a nonlinear (asymmetric) model.

Suggested Citation

  • Afees A. Salisu & Juncal Cuñado & Kazeem Isah & Rangan Gupta, 2021. "Oil Price and Exchange Rate Behaviour of the BRICS," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 57(7), pages 2042-2051, May.
    • Handle: RePEc:mes:emfitr:v:57:y:2021:i:7:p:2042-2051
    DOI: 10.1080/1540496X.2020.1850440
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    Citations

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    Cited by:

    1. Afees A. Salisu & Ahamuefula E. Ogbonna & Elie Bouri & Rangan Gupta, 2024. "Climate Risks and Prediction of Sectoral REITs Volatility: International Evidence," Working Papers 202434, University of Pretoria, Department of Economics.
    2. Ben Salem, Leila & Zayati, Montassar & Nouira, Ridha & Rault, Christophe, 2024. "Volatility spillover between oil prices and main exchange rates: Evidence from a DCC-GARCH-connectedness approach," Resources Policy, Elsevier, vol. 91(C).
    3. Yin, Libo & Su, Zhi & Lu, Man, 2022. "Is oil risk important for commodity-related currency returns?," Research in International Business and Finance, Elsevier, vol. 60(C).
    4. Thobekile Qabhobho, 2023. "Assessing the Asymmetric Effect of Local Realized Exchange Rate Volatility and Implied Volatilities in Energy Market on Exchange Rate Returns in BRICS," International Journal of Energy Economics and Policy, Econjournals, vol. 13(2), pages 231-239, March.
    5. Afees A. Salisu & Rangan Gupta & Riza Demirer, 2022. "The financial US uncertainty spillover multiplier: Evidence from a GVAR model," International Finance, Wiley Blackwell, vol. 25(3), pages 313-340, December.
    6. K.P. Prabheesh & Sanjiv Kumar, 2021. "The Dynamics of Oil Prices, Exchange Rates, and the Stock Market Under COVID-19 Uncertainty - Evidence From India," Energy RESEARCH LETTERS, Asia-Pacific Applied Economics Association, vol. 2(3), pages 1-6.
    7. Salisu, Afees A. & Gupta, Rangan & Kim, Won Joong, 2022. "Exchange rate predictability with nine alternative models for BRICS countries," Journal of Macroeconomics, Elsevier, vol. 71(C).
    8. Ding, Shusheng & Zheng, Dandan & Cui, Tianxiang & Du, Min, 2023. "The oil price-inflation nexus: The exchange rate pass- through effect," Energy Economics, Elsevier, vol. 125(C).
    9. Umar Bala & Lee Chin & Ghulam Mustafa, 2022. "Threshold Effects of Oil Price and Oil Export on Trade Balance in Africa," Journal of Economic Impact, Science Impact Publishers, vol. 4(1), pages 14-27.
    10. Hemrit, Wael & Nakhli, Mohamed Sahbi, 2021. "Insurance and geopolitical risk: Fresh empirical evidence," The Quarterly Review of Economics and Finance, Elsevier, vol. 82(C), pages 320-334.
    11. Kumeka, Terver Theophilus & Uzoma-Nwosu, Damian Chidozie & David-Wayas, Maria Onyinye, 2022. "The effects of COVID-19 on the interrelationship among oil prices, stock prices and exchange rates in selected oil exporting economies," Resources Policy, Elsevier, vol. 77(C).
    12. Afees A. Salisu & Rangan Gupta, 2021. "Commodity Prices and Forecastability of South African Stock Returns Over a Century: Sentiments versus Fundamentals," Working Papers 202144, University of Pretoria, Department of Economics.
    13. Afees A. Salisu & Ahamuefula E. Ogbonna & Rangan Gupta & Sisa Shiba, 2024. "Energy Market Uncertainties and Gold Return Volatility: A GARCH-MIDAS Approach," Working Papers 202431, University of Pretoria, Department of Economics.
    14. Salisu, Afees A. & Isah, Kazeem & Oloko, Tirimisiyu O., 2024. "Technology shocks and crude oil market connection: The role of climate change," Energy Economics, Elsevier, vol. 130(C).
    15. Salisu, Afees A. & Ogbonna, Ahamuefula E. & Gupta, Rangan & Bouri, Elie, 2024. "Energy-related uncertainty and international stock market volatility," The Quarterly Review of Economics and Finance, Elsevier, vol. 95(C), pages 280-293.
    16. Pami Dua & Rajiv Ranjan & Deepika Goel, 2023. "Forecasting the INR/USD Exchange Rate: A BVAR Framework," Springer Books, in: Pami Dua (ed.), Macroeconometric Methods, chapter 0, pages 183-224, Springer.
    17. Hao-Chang Yang & Ferry Syarifuddin & Chun-Ping Chang & Hai-Jie Wang, 2022. "The Impact of Exchange Rate Futures Fluctuations on Macroeconomy: Evidence from Ten Trading Market," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 58(8), pages 2300-2313, June.

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