Oil Prices, Exchange Rates and Emerging Stock Markets

While two different streams of literature exist investigating 1) the relationship between oil prices and emerging market stock prices and 2) oil prices and exchange rates, relatively little is known about the relationship between oil prices, exchange rates and emerging stock markets. This paper proposes and estimates a structural vector autoregression to investigate the dynamic relationship between these variables. Impulse responses are calculated in two ways (standard, projection based methods). The model supports stylized facts. In particular, positive shocks to oil prices tend to depress emerging market stock prices and US dollar exchange rates in the short run.PublishedAkram, Q.F. 2009. Commodity prices, interest rates and the dollar, Energy Economics, 31, 838-851. Basher, S.A. and Sadorsky, P. 2006. Oil price risk and emerging stock markets, Global Finance Journal, 17, 224-251. Benassy-Quere, A., Mignon, V. and Penot, A. 2007. 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