Spillover effect on currency exchange rates in oil exporting countries

Published: 31 August 2021| Version 1 | DOI: 10.17632/53bp97ph4y.1
Contributor:
Alexey Mikhaylov

Description

The study will be based on the hypothesis that the main sources of shocks for the oil market are political and pandemic-related risks. The research paper implements the VAR model to find the mean spillover between Brent oil prices and national currencies volatilities for the period from 2001 until 2021. The paper adds to the growing literature on the effects of COVID-19 on the spillover effect on currency exchange rates in oil exporting countries. Recent studies have shown how the spillover effect has changed in oil exporting countries. All three of the recent shocks (2008, 2012, 2020) in the oil market are transmitted to the currency markets of oil-producing countries. At the same time, the last shock of 2020 caused by the COVID-19 pandemic has not yet been fully reflected on the Russian ruble exchange rate. The main reason for this is the factor of decreasing sanctions pressure and the low level of external public debt in Russia. Correlation parameters became weaker in the last year, as the RURUSD correlation coefficient is fluctuating between -0.5 and 0.5. However, before 2020 the spillover effect is more significant (in the range from -0.8 to -0.1). Nigerian Naira and Algerian Dinar were showing almost the same movements, while the Russian Ruble was in a different trading range.

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