Oil price and exchange rate in India: Fresh evidence from continuous wavelet approach and asymmetric, multi-horizon Granger-causality tests

• Published in: Applied energy 2016-10, Vol.179, p.272-283
• Main Authors: Tiwari, Aviral Kumar, Albulescu, Claudiu Tiberiu
• Format: Article
• Language: English
• Subjects: Cyclical and anti-cyclical effects; Granger causality; India; Oil price-exchange rate; Wavelet coherence
• ISSN: 0306-2619; 1872-9118
• DOI: 10.1016/j.apenergy.2016.06.139

•We assess the relationship between the oil price and India-US real exchange rate.•We use a wavelet approach and asymmetric, multi-horizon Granger-causality tests.•Co-movements are noticed in the post-reform period, especially for 2–4-years bands.•The Granger-causal relationship between variables is non-linear and asymmetric.•The short run oil price movements are important for the exchange rate stabilization. We use a continuous wavelet approach and deploy asymmetric, multi-horizon Granger-causality tests between the return series of the oil price and the India-US exchange rate, over the time-span 1980M1–2016M2. The results highlight important co-movements in the post-reform period, especially for the 2–4-years band. The wavelet Granger-causality tests show that the exchange rate Granger-causes the oil price in the long run, while the opposite applies in the short run. Moreover, we find that the Granger-causal relationship between variables is non-linear, asymmetric and indirect, which will help policymakers and traders to make better strategic and investment decisions.