The impact of crude oil price fluctuations on the real effective exchange rate (REER) has been widely debated, but specific evidence, particularly for developing countries in Southeast Asia, is scarce and inconclusive. This issue, especially concerning both short- and long-term relationships, remains inadequately addressed, affecting these countries for risk management related to oil price fluctuations. This study aims to fill this gap by examining these relationships in Thailand context to provide more evidence on how the REER in Southeast Asia responds to changes in crude oil prices. Monthly data of crude oil prices in Dubai market and the Thai baht REER from 2000 to 2019 were employed. Johansen co-integration test and Vector Error Correction Model (VECM) were used for analyzing long-term and short-term relationships, respectively. The results indicate a significant negative long-term relationship between crude oil prices and the REER, with a 0.31% reduction in the REER for every 1% increase in the real price of oil. However, in the short term, VECM analysis reveals significant movements in the REER in response to external shocks. On average from 2000–2019, the significant fluctuations in the REER are quickly alleviated and adjusted to its long-run equilibrium, typically by 2% in the following month following external shocks such as crude oil price fluctuations. Given these findings, which highlight the long-term relationship between the REER and crude oil prices and its short-term adjustment, it is suggested that when there is a shock from the crude oil prices, the government can strengthen short-term oil price controls or monetary subsidies to mitigate the extensive repercussions of energy market fluctuations, as such interventions would have a lesser impact on the long-term equilibrium of the REER.

1. Abubakar, A. B. (2019). Oil price and exchange rate nexus in Nigeria: Are there asymmetries. CBN Journal of Applied Statistics (JAS), 10(1), 1–28. https://doi.org/10.33429/cjas.10119.1/6
2. Alam, M. S., Uddin, M. A., & Jamil, S. A. (2020). Dynamics of crude oil and real exchange rate in India. The Journal of Asian Finance, Economics, and Business, 7(12), 123–129. https://doi.org/10.13106/jafeb.2020.vol7.no12.123
3. Ali, S. Z., & Anwar, S. (2017). Exchange rate pass through, cost channel to monetary policy transmission, adaptive learning, and the price puzzle. International Review of Economics & Finance, 48, 69–82. https://doi.org/10.1016/j.iref.2016.11.010
4. Aliyu, S. U. R. (2009). Impact of oil price shock and exchange rate volatility on economic growth in Nigeria: An empirical investigation. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.1346418
5. Anderson, D. R., Burnham, K. P., Gould, W. R., & Cherry, S. (2001). Concerns about finding effects that are actually spurious. Wildlife Society Bulletin, 311–316.
6. Andrieș, A. M., Ihnatov, I., & Tiwari, A. K. (2014). Analyzing time–frequency relationship between interest rate, stock price and exchange rate through continuous wavelet. Economic Modelling, 41, 227–238. https://doi.org/10.1016/j.econmod.2014.05.013
7. Baek, J. (2021). A new look at the oil price-exchange rate nexus: Asymmetric evidence from selected OPEC member countries. Economic Analysis and Policy, 70, 172–181. https://doi.org/10.1016/j.eap.2021.02.008
8. Basnet, H. C., & Upadhyaya, K. P. (2015). Impact of oil price shocks on output, inflation and the real exchange rate: evidence from selected ASEAN countries. Applied Economics, 47(29), 3078–3091. https://doi.org/10.1080/00036846.2015.1011322
9. Batini, N., Levine, P., & Pearlman, J. (2007). Monetary rules in emerging economies with financial market imperfections. In International Dimensions of Monetary Policy. University of Chicago Press. pp. 251–311.
10. Beckmann, J., & Czudaj, R. (2013). Oil prices and effective dollar exchange rates. International Review of Economics & Finance, 27, 621–636. https://doi.org/10.1016/j.iref.2012.12.002
11. Bjørnland, H. C. (2008). Monetary policy and exchange rate interactions in a small open economy. Scandinavian Journal of Economics, 110(1), 197–221. https://doi.org/10.1111/j.1467-9442.2008.00532.x
12. Boroumand, S., Mohammadi, T., Pajooyan, J., & Memarnejad, A. (2019). The effect of exchange rate, oil prices and global inflation shocks on macroeconomic variables for the Iranian economy in the form of a DSGE model. Iranian Economic Review, 23(4), 1057–1083.
13. Breen, J. D., & Hu, L. (2021). The predictive content of oil price and volatility: New evidence on exchange rate forecasting. Journal of International Financial Markets, Institutions and Money, 75, 101454. https://doi.org/10.1016/j.intfin.2021.101454
14. Burakov, D. (2017). Transmission of United States monetary policy shocks to oil exporting countries: A vector error correction approach to Mundellian trilemma. International Journal of Energy Economics and Policy, 7(4), 14–22.
15. Chang, M. J., & Su, C. Y. (2014). The dynamic relationship between exchange rates and macroeconomic fundamentals: Evidence from Pacific Rim countries. Journal of International Financial Markets, Institutions and Money, 30, 220–246. https://doi.org/10.1016/j.intfin.2014.03.002
16. Chen, H., Liu, L., Wang, Y., & Zhu, Y. (2016). Oil price shocks and US dollar exchange rates. Energy, 112, 1036–1048. https://doi.org/10.1016/j.energy.2016.07.012
17. Chinn, M. D. (2006). A primer on real effective exchange rates: determinants, overvaluation, trade flows and competitive devaluation. Open economies review, 17, 115–143. https://doi.org/10.1007/s11079-006-5215-0
18. Coleman, S., Cuestas, J. C., & Mourelle, E. (2016). Investigating the oil price-exchange rate nexus: evidence from Africa 1970–2004. Economic Issues, 21(2), 53–79.
19. Combes, J. L., Kinda, T., & Plane, P. (2012). Capital flows, exchange rate flexibility, and the real exchange rate. Journal of macroeconomics, 34(4), 1034–1043. https://doi.org/10.1016/j.jmacro.2012.08.001
20. Darvas, Zsolt (2012). Real effective exchange rates for 178 countries- a new database. Working Papers 716, Bruegel. https://www.bruegel.org/working-paper/real-effective-exchange-rates-178-countries-new-database
21. Dornbusch, R. (1976). Expectations and exchange rate dynamics. Journal of political Economy, 84(6), 1161–1176. https://doi.org/10.1086/260506
22. Ferraro, D., Rogoff, K., & Rossi, B. (2015). Can oil prices forecast exchange rates? An empirical analysis of the relationship between commodity prices and exchange rates. Journal of International Money and Finance, 54, 116–141. https://doi.org/10.1016/j.jimonfin.2015.03.001
23. Fleming, J. M. (1962). Domestic Financial Policies under Fixed and under Floating Exchange Rates (French). Staff Papers-International Monetary Fund, 369–380. https://doi.org/10.2307/3866091
24. Granger, C.W.J. (2003). Spurious Regressions in Econometrics. In A Companion to Theoretical Econometrics, B.H. Baltagi (Ed.). https://doi.org/10.1002/9780470996249.ch27
25. Grigoli, F., Herman, A., & Swiston, A. (2019). A crude shock: Explaining the short-run impact of the 2014–16 oil price decline across exporters. Energy Economics, 78, 481–493. https://doi.org/10.1016/j.eneco.2018.11.025
26. Habib, M. M., Bützer, S., & Stracca, L. (2016). Global exchange rate configurations: do oil shocks matter? IMF Economic Review, 64, 443–470. https://doi.org/10.1057/imfer.2016.9
27. Hamilton, J. D. (2009). Causes and Consequences of the Oil Shock of 2007-08. National Bureau of Economic Research. https://doi.org/10.3386/w15002
28. Hasanov, Fakhri (2010). The Impact of Real Oil Price on Real Effective Exchange Rate: The Case of Azerbaijan. Discussion Papers of DIW Berlin 1041, DIW Berlin, German Institute for Economic Research. https://ideas.repec.org/p/diw/diwwpp/dp1041.html
29. Hou, Z., Keane, J., Kennan, J., & te Velde, D. W. (2015). The oil price shock of 2014: Drivers, impacts and policy implications. Overseas Development Institute. https://media.odi.org/documents/9589.pdf
30. Huang, Y., & Feng, G. (2007). The role of oil price shocks on China’s real exchange rate. China Economic Review, 18(4), 403–416. https://doi.org/10.1016/j.chieco.2006.02.003
31. Iqbal, F., & Raziq, A. (2018). Crude oil price-exchange rate nexus in Pakistan. Financial Statistical Journal, 1(2). https://doi.org/10.24294/fsj.v1i2.738
32. Ivanov, V., & Kilian, L. (2005). A practitioner’s guide to lag order selection for VAR impulse response analysis. Studies in Nonlinear Dynamics & Econometrics, 9(1). https://doi.org/10.2202/1558-3708.1219
33. Ivrendi, M., & Guloglu, B. (2010). Monetary shocks, exchange rates and trade balances: Evidence from inflation targeting countries. Economic Modelling, 27(5), 1144–1155. https://doi.org/10.1016/j.econmod.2010.03.005
34. Jiang, Y., Ren, Y. S., Narayan, S., et al. (2022). Heterogeneity dependence between oil prices and exchange rate: Evidence from a parametric test of Granger causality in quantiles. The North American Journal of Economics and Finance, 62, 101711. https://doi.org/10.1016/j.najef.2022.101711
35. Jiranyakul, K. (2015). Oil price volatility and real effective exchange rate: the case of Thailand. International Journal of Energy Economics and Policy, 5(2), 574–579.
36. Johansen, S. (1988). Statistical analysis of cointegration vectors. Journal of Economic Dynamics and Control, 12(2–3), 231–254.
37. Kaushik, N., Nag, R., & Upadhyaya, K. P. (2014). Oil price and real exchange rate: The case of India. International Business & Economics Research Journal (IBER), 13(4), 809–814. https://doi.org/10.19030/iber.v13i4.8688
38. Keynes, J. M. (1923). A tract on monetary reform. Cosimo Classics.
39. Kilian, L. (2009). Not all oil price shocks are alike: Disentangling demand and supply shocks in the crude oil market. American Economic Review, 99(3), 1053–1069. https://doi.org/10.1257/aer.99.3.1053
40. Kilian, L., & Park, C. (2009). The impact of oil price shocks on the US stock market. International Economic Review, 50(4), 1267–1287. https://doi.org/10.1111/j.1468-2354.2009.00568.x
41. Larsen, K. S. (2022). Influence of EU-Russian sanctions and oil price on Danish trade. Journal of International Logistics and Trade, 20(2), 102–115. https://doi.org/10.1108/jilt-05-2022-0005
42. Law, C. H. (2018). The heterogeneous impact of oil price on exchange rate: Evidence from Thailand. Economics Bulletin, 38(4), 1748–1756.
43. Lipschitz, L., & McDonald, D. (1992). Real exchange rates and competitiveness: A clarification of concepts, and some measurements for Europe. Empirica, 19(1), 37–69. https://doi.org/10.1007/bf00924805
44. Lizardo, R. A., & Mollick, A. V. (2010). Oil price fluctuations and US dollar exchange rates. Energy Economics, 32(2), 399–408. https://doi.org/10.1016/j.eneco.2009.10.005
45. Mahmood, H. (2021). Oil prices, control of corruption, governance, and economic growth nexus in Saudi Arabia. International Journal of Energy Economics and Policy, 11(4), 91–96. https://doi.org/10.32479/ijeep.11181
46. Manasseh, C. O., Ogbuabor, J. E., Abada, F. C., et al. (2019). Analysis of oil price oscillations, exchange rate dynamics and economic performance. International Journal of Energy Economics and Policy, 9(1), 95–106.
47. Matthew, Oluwatoyin & Adegboye, F.B. (2014) An Analysis of the Effect of Oil Price Shock and Exchange Rate Instability on Economic Growth in Nigeria. Scottish Journal of Arts, Social Sciences and Scientific Studies. ISSN 2047-1278
48. Mundell, R. A. (1963). Capital mobility and stabilization policy under fixed and flexible exchange rates. Canadian Journal of Economics and Political Science, 29(4), 475–485. https://doi.org/10.2307/139336
49. Musa, K. S., Campus, Y., & Tower, N. (2020). Crude oil price and exchange rate nexus: An ARDL bound approach. Open Access Library Journal, 7(03), 1–24. https://doi.org/10.4236/oalib.1106072
50. Oriavwote, V. E., & Eriemo, N. O. (2012). Oil prices and the real exchange rate in Nigeria. International Journal of Economics and Finance, 4(6), 198–205. https://doi.org/10.5539/ijef.v4n6p198
51. Sanusi, K. A. (2020). Oil prices asymmetric and exchange rate volatility: Case of oil-exporting emerging countries. Journal of International Studies, 13(4), 101–109. https://doi.org/10.14254/2071-8330.2020/13-4/7
52. Shaari, M. S., Hussain, N. E., & Abdullah, H. (2012). The effects of oil price shocks and exchange rate volatility on inflation: Evidence from Malaysia. International Business Research, 5(9), 106–112. https://doi.org/10.5539/ibr.v5n9p106
53. Singhal, S., Choudhary, S., & Biswal, P. C. (2019). Return and volatility linkages among International crude oil price, gold price, exchange rate and stock markets: Evidence from Mexico. Resources Policy, 60, 255–261. https://doi.org/https://doi.org/10.1016/j.resourpol.2019.01.004
54. Tiwari, A. K., Mutascu, M. I., & Albulescu, C. T. (2013). The influence of the international oil prices on the real effective exchange rate in Romania in a wavelet transform framework. Energy Economics, 40, 714–733. https://doi.org/10.1016/j.eneco.2013.08.016
55. Working, H. (1934). A random-difference series for use in the analysis of time series. Journal of the American Statistical Association, 29(185), 11–24. https://doi.org/10.1080/01621459.1934.10502683
56. Zhang, R., Zhang, H., Gao, W., et al. (2022). The dynamic effects of oil price shocks on exchange rates—from a time-varying perspective. Sustainability, 14(14), 8452. https://doi.org/10.3390/su14148452