Exchange Rate and Oil Price Pass-Through in Emerging Market Economies

Tez Türü: Doktora

Tezin Yürütüldüğü Kurum: Doğu Akdeniz Üniversitesi, Business and Economics, Economics, Kıbrıs (Kktc)

Tez Danışmanı: Prof. Dr. Behmet Balcilar

Tezin Onay Tarihi: 2019

Tezin Dili: İngilizce

Özet:

This study provides a macroeconomic analysis of the exchange rate and oil price pass-through (EROPPT) in the emerging market economies with a focus on the BRICS and Nigerian economies. The econometrics tools used in the analysis are based on the linear and nonlinear methods. The first part of the study revisits the Exchange Rate Pass-Through (ERPT) to inflation in Nigeria and South Africa by incorporating structural breaks and using time series data from 1986Q1-2016Q4. Based on the Maki cointegration test and a flexible estimation approach of the Autoregressive Distributed Lag (ARDL) model, our empirical evidence suggests that the long- and short-run ERPT to inflation is complete for Nigeria while for South Africa, it is incomplete in both long run and short run. This result indicates that prices are stickier in South Africa compared to Nigeria. The comparison between Nigeria and South Africa confirms the role of inflation targeting and Central Bank credibility on the ERPT. The results divulge further that output growth in Nigeria increases inflation in the long run while it is anti-inflationary in the short run. For South Africa, the effect of output growth is negatively insignificant. In addition, the long-run effect of oil price is negative and significant for Nigeria, while for South Africa the short-run effect of oil price is positive and significant. The second part investigates not only the question of whether there is exchange rate and oil price pass-through (EROPPT) but also the extent to which the pass-through is asymmetric or state dependent in the BRICS countries. Using monthly data and the nonlinear Vector Smooth Transition Autoregressive (VSTAR) model, we find evidence of period specific pass-through between the upper and lower regime periods, governed by the selected transition variables. We also find asymmetric pass-through in all the countries with strong evidence of higher pass-through when the size of the shocks to the transition variable moves the system above a threshold level. The result further divulges that output growth asymmetrically reacts to the shocks. The implication of these findings is that the pass-through is strongly affected by the state of the economy. The third part focuses on the pass-through of exchange rate and oil price in BRICS countries through the analysis of Diebold and Yilmaz (2012) spillover index and rolling-window. Using the monthly frequency time series data, our results provide the following novelties: (i) There is strong evidence of directional spillover in all the countries; (ii) the total spillover is low, with Brazil (India) having the highest (lowest). This suggests that a greater percent of shocks is explained by idiosyncratic shocks; (iii) the net spillover of oil price (output growth) is positive (negative) for all the countries, indicating that oil price (output growth) contributes to the forecast error variance decomposition of other variables more (less) than it receives from other variables. In addition, the net spillover of exchange rate is positive only for Russia and China while consumer price index is positive only for Brazil and China; (iv) the historical events and crises interrupt the extent of spillover in all the countries; (v) even though the spillover exhibits significant bursts, there is no clear-cut evidence of trends. In the final part, we investigates the exchange rate and oil price pass-through (EROPPT) in BRICS Countries. The main objective is to determine whether changes in exchange rate and oil price of different magnitudes have disproportionate pass-through effects. To this end, we extend the Diebold-Yilmaz (DY) spillover index to incorporate nonlinearity based on a Vector Smooth Transition Autoregressive (VSTAR) model. This approach allows for a smooth period-specific and regime-dependent DY spillover indexes, governed by the selected transition variable. The results provide evidence of significant differences between the upper and lower regimes of the period-specific and regime-dependent EROPPT. The results further suggest that the total pass-through in the regime-dependent model is higher compared to when the linear Vector Autoregressive (VAR) assumption is imposed. These findings, therefore, provide insights for policymakers to properly manage macroeconomics with a sound monetary policy. Generally, the findings of this thesis provide insights for policymakers to properly manage macroeconomic variables with a sound monetary policy in order to reduce the pass-through of exchange rate and oil price in the emerging market economies.