What are the effects of oil price shocks on the real exchange rates of oil exporting countries? A nonlinear smooth-transition approach
This paper considers logistic (asymmetric) and exponential (symmetric) smooth transition adjustments of real exchange rates for six major oil-exporting countries in response to three different shocks affecting oil prices. Real exchange rate movements affect the terms of trade and hence may affect relative competitiveness. We detect no statistically significant non-linearities for the adjustment process of real exchange rate returns, be they asymmetric or symmetric, in response to oil-market-specific demand shocks and oil supply shocks, except for the effects of oil supply shocks on Russian exchange returns. All other countries’ exchange returns are unaffected by oil supply shocks. Linear effects are present for oil-market-specific demand shocks for Canada, Norway and Russia. On the other hand, global aggregate demand shocks, which are shocks not directly originating in the oil market, have nonlinear asymmetric effects on exchange rate returns for Canada, Mexico and Norway, and linear effects for the UK.