Foreign exchange markets and oil prices in Asia |
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| Institution: | 1. Ruhr University of Bochum, Chair for International Economics, D-44801 Bochum, Germany;2. Kiel Institute for the World Economy, Hindenburgufer 66, D-24105 Kiel, Germany;3. University of Duisburg-Essen, Department of Economics, Chair for Econometrics, D-45117 Essen, Germany;4. FOM Hochschule für Oekonomie & Management, University of Applied Sciences, Herkulesstr. 32, D-45127 Essen, Germany |
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| Abstract: | In this paper, we examine whether oil price can predict exchange rate returns for 14 Asian countries. A new GLS-based time series predictive regression model proposed by Westerlund and Narayan (WN, 2012) is used. The main finding is that higher oil price leads to future depreciation of the Vietnamese dong but future appreciations of the local currencies of Bangladesh, Cambodia, and Hong Kong. A comparison of the widely used Lewellen (2004) and WN (2012) estimators show that both provide similar results in in-sample analysis, although WN is relatively superior at longer horizons in out-of-sample analysis. |
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| Keywords: | Exchange rate Oil prices Asia Endogeneity Heteroskedasticity |
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