Quantile regression approach in investigation of the effects of oil price shocks on exchange rates of selected OPEC member countries

Abstract

This article investigates the effects of oil price shocks on different quantiles of real exchange rates of selected OPEC member countries (Islamic republic of Iran, Nigeria, Algeria and Saudi Arabia) from January 1993 to December 2018 with quantile regression approach. The result indicates that positive and negative oil price shocks have asymmetric effects on different quantiles of real exchange rates affected by market conditions. Rising oil prices at lower quantiles of real exchange rates, because of central bank intervention effect, and at the medium quantiles because of increase in import of industrial and semi-industrial goods lead to USD appreciation against the currency of Iran, Nigeria and Algeria while at upper quantiles has no meaningful effect on real exchange rate of these four countries. Also, falling oil prices only lead to deprecation of SAR against USD at lower quantiles of exchange rate. Ultimately current result confirms the Balassa-Samuelson effect for all of these countries.

Keywords

• quantile regression
• exchange rates
• oil price shocks