Acta Universitatis Danubius. Œconomica, Vol 15, No 6 (2019)

Modelling Exchange Rate Pass-through and Oil Price Asymmetries

Johnson Ojo Adelakun

Abstract


Motivated by the increasing evidence of significant response of exchange rate to changes in oil prices, this present study hypothesized that changes in oil prices matter for the degree and direction of exchange rate pass-through. Using the case of oil exporting–oil importing dichotomy, we explore the Salisu and Isah (2017) newly formulated nonlinear Panel ARDL model to determine the extent to which changes in oil prices and asymmetries matter in the degree and direction of exchange rate pass-through. Given the data under consideration, our empirical finding gives credence to the school of thought challenging the widely held assertion that attributes declining pass-through to developed markets phenomenon. Essentially, we find that accounting for asymmetries in the pass-through matters for the extent to which changes in oil prices accelerate the degree of exchange rate pass-through. 

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