Crude oil price-exchange rate nexus in Pakistan

Farhat Iqbal, Abdul Raziq

Abstract


This paper studies the association between price of crude oil and the Pakistani Rupee-US Dollar exchange. Asymmetric power autoregressive conditional heteroscedastic (APARCH) model is used to measure the influence of oil price on the nominal exchange rate using daily data of extreme oil price volatility (2006 – 2013). This model is found to fit the data well and the results reveal a high degree of volatility persistence and leverage effect in returns. This study also establishes a positive association between currency exchange rate and oil price. These findings provide insight into the transmission link between the global oil market and exchange rate.


Keywords


APARCH; exchange rate; oil price; volatility clustering.

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DOI: http://dx.doi.org/10.24294/fsj.v1i2.738

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