Impact of crude oil on exchange rate and stock market indices of brics nations

Abstract

Oil is considered to be one of the most important non-renewable sources of energy and often plays a significant role in the growth of domestic and global economies. The impact of oil prices denominated in dollar terms on the BRICS nations is of no use without considering the exchange rate. The study investigates the dynamic relationship among crude oil prices, exchange rates and stock market indices of BRICS nations for the sample period from year 2009 to 2018. The results reveal a long run relationship between market index and crude oil price for Brazil and Russia. VECM results for Brazil and Russia explained that the market index adjusts disturbances to restore long run equilibrium. The granger causality test explained different causal relationship between variables for the BRICS nations. The results of impulse response function explained that positive shock on one variable remains persistent, prolonged and stable over a long term. Variance decomposition test for Brazil and Russia highlighted crude oil to be more exogenous in comparison to other variables.