Exchange rate and oil price: asymmetric adjustment

Abstract

This article aims to investigate whether the interaction between exchange rate and oil price exhibits asymmetric adjustment in Philippines using quarterly data over the period 1970Q1 to 2011Q4. The Threshold Autoregressive (TAR) model reveals that exchange rate and oil price are not cointegrated. However, these two variables are asymmetrically adjusted in Momentum Threshold Autoregressive (MTAR) model. Thus, it suggests that adjustment mechanism towards equilibrium may not be necessarily constant.

Keywords:

• exchange rate
• oil price
• asymmetric cointegration
• asymmetric error-correction modelling

JEL Classification:

• F31
• C22