Analysis of the heterogeinety impact of oil prices shocks on exchange rates in oil exporting countries: evidence of quantiles-on -quantiles approach

Abstract

The objective of this study is to investigate the heterogeneous dynamic between exchange rate returns and oil prices in oil exporting countries. Precisely, the researchers used the exchange rates returns of both low incomes, emerging and developed majors oil exporting countries, and decomposed oil price shocks to study the heterogeneity of the intrinsic dynamic between the two variables in these countries, using the quantile-on-quantile analysis. The findings revealed that, although the dynamic between oil prices shocks and exchange rates returns is largely negative in these countries, there are important variability of the shocks impacts across the quantile distribution of both exchange rates returns and the different oil price shocks. More precisely , the study reavealed the heterogeneity of the different oil shocks impacts (oil aggregate demand , oil supply and oil specific demand shocks) on the exchange rates return of a given country , with the shape of the QQR graphs being different according to the source of shock and the magnitude of oil demand and oil specific demand shocks being more significant than that of oil supply shocks in many of the cases. In the same way , the analysis results also indicate that the dynamic between oil price shocks and exchange rate is heterogenous across the countries , with the impact of the shocks being more significant in developing countries than it is in developed countries . As well the behavior of the exchange rates returns at extreme values is different from one country to another. From this insight, the researcher recommends an economy diversification mainly for oil developing countries, and country-specific economy policies to mitigate the incidence of oil shocks, as the impact differs from one country to another.. Keywords: Exchange Rates, Oil Prices, Quantile-on-Quantile, Oil Exporting Countries.