Oil Prices and Monetary Policy in Emerging Markets: Structural Shifts in Causal Linkages

NAZLIOĞLU Ş., Gormus A., SOYTAŞ U.

EMERGING MARKETS FINANCE AND TRADE, vol.55, no.1, pp.105-117, 2019 (SSCI) identifier identifier

  • Publication Type: Article / Article
  • Volume: 55 Issue: 1
  • Publication Date: 2019
  • Doi Number: 10.1080/1540496x.2018.1434072
  • Journal Name: EMERGING MARKETS FINANCE AND TRADE
  • Journal Indexes: Social Sciences Citation Index (SSCI), Scopus
  • Page Numbers: pp.105-117
  • Keywords: causality, emerging markets, monetary policy, oil prices, structural shifts, UNIT-ROOT TEST, ECONOMIC-GROWTH, SMOOTH BREAKS, SUPPLY SHOCKS, EXCHANGE-RATE, TIME-SERIES, TESTS, STATIONARITY, TURKEY, NEXUS
  • Middle East Technical University Affiliated: Yes

Abstract

This study tests the causal relationships between oil prices and monetary policy for the emerging markets (Brazil, India, Indonesia, South Africa, and Turkey). In particular, we explore the role of exchange rates, inflation, and interest rates. First, we utilize the commonly used Toda-Yamamoto causality framework and later augment the model to account for structural shiftsincluding gradual/smooth shifts. The empirical findings show that (i) accounting for gradual structural shifts matter for the causal linkages between oil prices and the monetary policy variables and (ii) employing a bivariate or multivariate frameworks is not important (with few exceptions) as much as controlling for structural breaks in these causal linkages.