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Do Oil Price Fluctuations Alter the Exchange Rate in Japan?: A New Look into an Old Question

Do Oil Price Fluctuations Alter the Exchange Rate in Japan?: A New Look into an Old Question

Nasim Sydee, Gazi Salah Uddin
Copyright: © 2014 |Pages: 19
ISBN13: 9781466646391|ISBN10: 146664639X|EISBN13: 9781466646407
DOI: 10.4018/978-1-4666-4639-1.ch002
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MLA

Sydee, Nasim, and Gazi Salah Uddin. "Do Oil Price Fluctuations Alter the Exchange Rate in Japan?: A New Look into an Old Question." Globalization and Governance in the International Political Economy, edited by Ümit Hacioğlu and Hasan Dinçer, IGI Global, 2014, pp. 8-26. https://doi.org/10.4018/978-1-4666-4639-1.ch002

APA

Sydee, N. & Uddin, G. S. (2014). Do Oil Price Fluctuations Alter the Exchange Rate in Japan?: A New Look into an Old Question. In Ü. Hacioğlu & H. Dinçer (Eds.), Globalization and Governance in the International Political Economy (pp. 8-26). IGI Global. https://doi.org/10.4018/978-1-4666-4639-1.ch002

Chicago

Sydee, Nasim, and Gazi Salah Uddin. "Do Oil Price Fluctuations Alter the Exchange Rate in Japan?: A New Look into an Old Question." In Globalization and Governance in the International Political Economy, edited by Ümit Hacioğlu and Hasan Dinçer, 8-26. Hershey, PA: IGI Global, 2014. https://doi.org/10.4018/978-1-4666-4639-1.ch002

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Abstract

Determinants of exchange rate fluctuations have long been a topic of interest for the economists. Although there exists a large number of studies that attempt to decipher the exact relationship between the price of oil and exchange rate, a clear answer still remains absent. Most studies suffer either from ambiguous findings or from the severe limitations stemming from the assumption of non-stationarity. In this chapter, the relationship between oil price differentials and real effective exchange rate of Japan is thoroughly investigated by utilizing sophisticated research tools that provide additional degree of rigor to the results. Maximal Overlap Discrete Wavelet Transform (MODWT) is used to decompose the time series into different frequencies and then the relationship between the two series at different time frequencies are examined with the use of standard econometric techniques. This chapter finds that international oil prices vibrate the exchange rate at the short term frequency bands. However, no evidence of causal relationship is found at the lower time scales, although such evidence is found at higher time scales.

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