This paper aims to accommodate the influence of both economic policy uncertainty and geopolitical risks in the relationship between oil price and exchange-rate returns in the Brazil, Russia, India, China and South Africa (BRICS) countries through an interaction term (EPGR).
The authors use continuous wavelet transform (CWT), wavelet coherence (WC) and partial wavelet coherence (PWC). First, the authors apply the CWT to examine the evolution of oil prices, EPGR and exchange rate returns. Second, the authors use WC to investigate the relationship between oil price and exchange rate returns (excluding EPGR). Third, the authors use PWC to account for EPGR’s impact on the oil exchange rate returns dynamics and explore partial correlations in the oil and exchange rate returns dynamics.
The empirical results generally show that EPGR is a key driver in the oil and exchange rate returns nexus.
The relevance of EPGR in influencing exchange rate volatility is confirmed by the findings. As a result, it is critical for government officials and foreign exchange investors to use EPGR as a leading indicator when establishing foreign exchange trading strategies and economic forecasts.
This study is the first, to the best of the authors’ knowledge, to apply a wavelet-based technique to account for EPGR in the relationship between oil and exchange rate returns in the BRICS countries.
The authors appreciate the anonymous reviewer and the editorial team.
This research is funded by the University of Economics, Ho Chi Minch City, Vietnam.
Conflict of interest: None declared by the authors.
Adeosun, O.A., Tabash, M.I. and Vo, X.V. (2023), "Oil prices, news-based uncertainty measures and exchange rate returns in BRICS countries", International Journal of Energy Sector Management, Vol. 17 No. 6, pp. 1092-1118. https://doi.org/10.1108/IJESM-02-2022-0005
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