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Do Brent Crude Oil, Nifty 50 and USD/INR Exchange Rate Walk Together? An ARDL-bounds Testing Approach


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1 Jamia Millia Islamia, Central University, New Delhi, India
     

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The volatility in oil prices has a different impact on countries due to various factors such as their relative position as oil importers or exporters, demand and supply factors, their relative elasticity, the ability to substitute with energy efficient products, different tax structures etc. It affects the stock market and exchange rate. This volatility in prices of oil renders more impact in emerging nations such as India. The paper attempts to study the comovement of Brent Crude oil prices and Nifty 50 and USD/INR exchange rate. The sample period from 5th September 2014 to 12th February 2018 comprising of daily data on all three variables are taken. Further, the Auto-Regressive Distributed Lag (ARDL) model was used for estimating long run cointegration. For short run dynamics, Vector Auto-Regressive (VAR) model was put. The results exhibit an equilibrium relationship among the variables understudy in the long run. The results of the VAR model affirm the importance of Brent Crude, Nifty 50 lagged prices influence Exchange Rate.

Keywords

VAR, Brent Crude Oil, Stock Market, ARDL, Exchange Rate.
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  • Do Brent Crude Oil, Nifty 50 and USD/INR Exchange Rate Walk Together? An ARDL-bounds Testing Approach

Abstract Views: 352  |  PDF Views: 0

Authors

Saif Siddiqui
Jamia Millia Islamia, Central University, New Delhi, India
Preeti Roy
Jamia Millia Islamia, Central University, New Delhi, India

Abstract


The volatility in oil prices has a different impact on countries due to various factors such as their relative position as oil importers or exporters, demand and supply factors, their relative elasticity, the ability to substitute with energy efficient products, different tax structures etc. It affects the stock market and exchange rate. This volatility in prices of oil renders more impact in emerging nations such as India. The paper attempts to study the comovement of Brent Crude oil prices and Nifty 50 and USD/INR exchange rate. The sample period from 5th September 2014 to 12th February 2018 comprising of daily data on all three variables are taken. Further, the Auto-Regressive Distributed Lag (ARDL) model was used for estimating long run cointegration. For short run dynamics, Vector Auto-Regressive (VAR) model was put. The results exhibit an equilibrium relationship among the variables understudy in the long run. The results of the VAR model affirm the importance of Brent Crude, Nifty 50 lagged prices influence Exchange Rate.

Keywords


VAR, Brent Crude Oil, Stock Market, ARDL, Exchange Rate.

References