Modelling the Impact of Crude Oil Prices and Stock Price Index on Indonesia’s Exchange Rates
This paper employs various GARCH-type models and the daily data from 3 July 2006 to 30 June 2021 to examine the effect of crude oil prices and stock price index on exchange rates for Indonesia, the largest oil producer in Southeast Asia. Since the share markets and oil prices are very volatile, test...
| Main Authors: | , , |
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| Format: | Article |
| Language: | English |
| Published: |
Sciendo
2023-12-01
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| Series: | Studies in Business and Economics |
| Subjects: | |
| Online Access: | https://doi.org/10.2478/sbe-2023-0057 |
| _version_ | 1797258316118753280 |
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| author | Raji Jimoh Olajide Adeel-Farooq Rana Muhammad Oyewole Tajudeen Toyin |
| author_facet | Raji Jimoh Olajide Adeel-Farooq Rana Muhammad Oyewole Tajudeen Toyin |
| author_sort | Raji Jimoh Olajide |
| collection | DOAJ |
| description | This paper employs various GARCH-type models and the daily data from 3 July 2006 to 30 June 2021 to examine the effect of crude oil prices and stock price index on exchange rates for Indonesia, the largest oil producer in Southeast Asia. Since the share markets and oil prices are very volatile, testing the stability of the parameters or system is desirable. We achieve this by using the Nyblom’s fluctuations test and account for the structural break associated with the fluctuations. Findings reveal that lower oil price return leads the Indonesian currency per US dollar to depreciate. In addition, we find that stock return has negative and significant relation with exchange rates. This lends support to the portfolio balance effect in which a decrease in stock prices leads to a depreciation of Indonesian Rupiah against the US dollar. Evidence from EGARCH model shows that shocks to the volatility of exchange rate have a symmetrical effect. Our results suggest that as lower oil prices and stock prices contributes to depreciation of Indonesia rupiah against USD, an appropriate monetary policy may require adjustment of interest rates to resist the exchange rate fluctuations without being detrimental to the banking system. |
| first_indexed | 2024-03-08T12:27:25Z |
| format | Article |
| id | doaj.art-9eef624b8d8946f797ca40b91da6376e |
| institution | Directory Open Access Journal |
| issn | 2344-5416 |
| language | English |
| last_indexed | 2024-04-24T22:51:36Z |
| publishDate | 2023-12-01 |
| publisher | Sciendo |
| record_format | Article |
| series | Studies in Business and Economics |
| spelling | doaj.art-9eef624b8d8946f797ca40b91da6376e2024-03-18T10:29:32ZengSciendoStudies in Business and Economics2344-54162023-12-0118324426010.2478/sbe-2023-0057Modelling the Impact of Crude Oil Prices and Stock Price Index on Indonesia’s Exchange RatesRaji Jimoh Olajide0Adeel-Farooq Rana Muhammad1Oyewole Tajudeen Toyin21Department of Finance, University Utara Malaysia, Malaysia2Department of Economics, University of Sahiwal, Pakistan3Department of Liberal Studies, Federal Polytechnic Offa, NigeriaThis paper employs various GARCH-type models and the daily data from 3 July 2006 to 30 June 2021 to examine the effect of crude oil prices and stock price index on exchange rates for Indonesia, the largest oil producer in Southeast Asia. Since the share markets and oil prices are very volatile, testing the stability of the parameters or system is desirable. We achieve this by using the Nyblom’s fluctuations test and account for the structural break associated with the fluctuations. Findings reveal that lower oil price return leads the Indonesian currency per US dollar to depreciate. In addition, we find that stock return has negative and significant relation with exchange rates. This lends support to the portfolio balance effect in which a decrease in stock prices leads to a depreciation of Indonesian Rupiah against the US dollar. Evidence from EGARCH model shows that shocks to the volatility of exchange rate have a symmetrical effect. Our results suggest that as lower oil prices and stock prices contributes to depreciation of Indonesia rupiah against USD, an appropriate monetary policy may require adjustment of interest rates to resist the exchange rate fluctuations without being detrimental to the banking system.https://doi.org/10.2478/sbe-2023-0057exchange ratecrude oil pricestock price indexgarch-type modelsindonesia |
| spellingShingle | Raji Jimoh Olajide Adeel-Farooq Rana Muhammad Oyewole Tajudeen Toyin Modelling the Impact of Crude Oil Prices and Stock Price Index on Indonesia’s Exchange Rates Studies in Business and Economics exchange rate crude oil price stock price index garch-type models indonesia |
| title | Modelling the Impact of Crude Oil Prices and Stock Price Index on Indonesia’s Exchange Rates |
| title_full | Modelling the Impact of Crude Oil Prices and Stock Price Index on Indonesia’s Exchange Rates |
| title_fullStr | Modelling the Impact of Crude Oil Prices and Stock Price Index on Indonesia’s Exchange Rates |
| title_full_unstemmed | Modelling the Impact of Crude Oil Prices and Stock Price Index on Indonesia’s Exchange Rates |
| title_short | Modelling the Impact of Crude Oil Prices and Stock Price Index on Indonesia’s Exchange Rates |
| title_sort | modelling the impact of crude oil prices and stock price index on indonesia s exchange rates |
| topic | exchange rate crude oil price stock price index garch-type models indonesia |
| url | https://doi.org/10.2478/sbe-2023-0057 |
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