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GCC countries and the nexus between exchange rate and oil price: What wavelet decomposition reveals?

GCC countries and the nexus between exchange rate and oil price: What wavelet decomposition reveals? We employ wavelet decomposition and nonlinear causality test to investigate the nexus between the real oil price and the real effective exchange rate in three GCC countries: Qatar, Saudi Arabia and UAE. We find strong evidence in favour of a feedback hypothesis in Qatar and UAE and of a neutrality hypothesis in Saudi Arabia. The first observation outcome means that Qatar and UAE should reinforce the downward effect of oil price on real exchange rate by improving diversification policy. The second one implies that the behaviour of Saudi Arabia as a price taker may allow it to maintain a quick recovery under oil shocks. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png International Journal of Computational Economics and Econometrics Inderscience Publishers

GCC countries and the nexus between exchange rate and oil price: What wavelet decomposition reveals?

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Publisher
Inderscience Publishers
Copyright
Copyright © Inderscience Enterprises Ltd. All rights reserved
ISSN
1757-1170
eISSN
1757-1189
DOI
10.1504/IJCEE.2015.066203
Publisher site
See Article on Publisher Site

Abstract

We employ wavelet decomposition and nonlinear causality test to investigate the nexus between the real oil price and the real effective exchange rate in three GCC countries: Qatar, Saudi Arabia and UAE. We find strong evidence in favour of a feedback hypothesis in Qatar and UAE and of a neutrality hypothesis in Saudi Arabia. The first observation outcome means that Qatar and UAE should reinforce the downward effect of oil price on real exchange rate by improving diversification policy. The second one implies that the behaviour of Saudi Arabia as a price taker may allow it to maintain a quick recovery under oil shocks.

Journal

International Journal of Computational Economics and EconometricsInderscience Publishers

Published: Jan 1, 2015

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