Thsfina Group 21 Thesis

The Impact of Crude Oil Prices on the Inflation Rate, Exchange Rate, and Interest
Rate of Emerging Oil Exporting and Oil Importing Countries
An Undergraduate Thesis Presented to the

Department of Management of Financial Institutions
Ramon V. Del Rosario College of Business
De La Salle University-Manila
In Completion of the Requirements for the Degree of

Bachelor of Science in Management of Financial Institutions
Submitted by:
Gil Anthony W. Lim
Sharla Michole N. Lim
Patrick Jayz S. Pascua
Charles Barry D. Uy-Barreta
November 2016
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Acknowledgement
The researchers would want to express their deepest gratitude to the people who
were involved in the success of this thesis research. Without their guidance, never-ending
patience, and motivation, this study would not have been possible.
First and foremost, we would like to thank and give praise to God for giving us the
strength, wisdom and courage to face every challenge we were faced with. We would
have not been inspired if it were not for His guidance to complete our goal.
We would also want to express our deepest gratitude to our thesis advisers Dr.
Neriza Delfino and Mr. Tyrone Chan Pao for their consistent guidance and help towards
the completion of our thesis. Both were big factors and essential towards the success of
our study. We would also like to acknowledge Mr. Tommy Tiu and Mr. Alfredo Santoyo
for their helpful advice, comments, and suggestions during our thesis proposal defense
and our sincere appreciation to Ms. Brendy Ocampo-Tan, our thesis proposal professor
and overall thesis coordinator for mentoring and guiding us from start to finish. We would
also like to thank Atty. Jose-Santos Bisquera and Dr. Dexter Wee Ginete PhD. for being
our final defense panelists. It is an honor to have the best of the best and to have them
comment and give ideas on how to improve our study and make it more substantial.
Without these kind individuals, we would not have been able to improve and further
develop our study and give our panelists an interesting and informative presentation.
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Lastly, the group would like to thank our family and friends for their never-ending
support that kept us motivated and kept us pushing to pursue our goal. Their
encouragement, prayers, and support definitely helped us in every aspect.
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Abstract
The impact of crude oil prices on inflation rates, exchange rates, and interest rates
of emerging crude oil exporting countries and crude oil importing countries was tested in
this study using the Granger Causality Test. The variables used in this study are the
simple average of the three major crude oil benchmarks in the world namely the Brent
Blend, Dubai/Oman, and the West Texas Intermediate (WTI) since these are the mostly
traded benchmarks in the oil industry. Also, the countries in the study used different
benchmarks and data collection since other benchmarks were not attainable. For inflation
rates, the headline inflation rate for each country was used. For the exchange rate, the
average exchange rate of each country was used and compared to the US Dollar. And for
the interest rate, the nominal interest rate of each country was used. The study limits its
coverage to a ten-year monthly timeline from 2006 to 2015. Results show that nine out of
ten countries were affected by the fluctuations of crude oil prices between 2006 to 2015.
Brunei is the only country not affected by the fluctuations of crude prices while Cambodia
is the most affected country.
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Table of Contents
Chapter 1: Introduction
1.1 Background of the Study..................................................................1
1.2 Statement of the Problem ................................................................3
1.3 Objectives...........................................................................................4
1.4 Statement of the Hypothesis.............................................................4
1.5 Assumptions......................................................................................5
1.6 Scope and Limitations......................................................................6
1.7 Significance of the Study..................................................................7
Chapter 2: Review of Related Literature
2.1 Review of Related Literature...........................................................8
2.2 Research Gap..................................................................................15
2.3 Literature Map................................................................................16
Chapter 3: Framework
3.1 Theoretical Framework..................................................................17
3.2 Operational Framework.................................................................19
3.3 Definition of Terms.........................................................................21
Chapter 4: Methodology
4.1 Research and Sampling Design.....................................................24
4.2 Data Description and Collection Method.....................................25
4.3 Method of Data Analysis................................................................26
5
4.4 Methodological Limitations...........................................................27
Chapter 5: Results and Analysis.....................................................................................32
Chapter 6: Conclusion and Recommendation...............................................................48
Bibliography......................................................................................................................53
Appendices........................................................................................................................58
6
List of Figures
1.1 Lagged Values Criterion Selection

for the Inflation Rates of Cambodia..............................................................................58
1.2 VECM Table for the Inflation Rates
of Cambodia and Crude Oil Prices.................................................................................60
for the Exchange Rates of Cambodia.............................................................................62
1.4 VECM Table for the Exchange Rates
for the Interest Rates of Cambodia.................................................................................67
1.6 VECM Table for the Interest Rates
for the Inflation Rates of Laos.........................................................................................72
of Laos and Crude Oil Prices..........................................................................................75
for the Exchange Rates of Laos.......................................................................................77
for the Interest Rates of Laos..........................................................................................82
for the Inflation Rates of Philippines.............................................................................87
of Philippines and Crude Oil Prices...............................................................................89
for the Exchange Rates of Laos......................................................................................92
for the Interest Rates of Philippines...............................................................................96
for the Inflation Rates of Singapore..............................................................................102
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of Singapore and Crude Oil Prices...............................................................................105
for the Exchange Rates of Singapore............................................................................108
for the Interest Rates of Singapore...............................................................................112
for the Inflation Rates of Thailand...............................................................................118
of Thailand and Crude Oil Prices.................................................................................121
for the Exchange Rates of Thailand..............................................................................123
of Thailand and Crude Oil Prices.................................................................................125
for the Interest Rates of Thailand.................................................................................127
of Cambodia and Crude Oil Prices...............................................................................130
for the Inflation Rates of Brunei...................................................................................133
of Brunei and Crude Oil Prices.....................................................................................136
for the Exchange Rates of Brunei.................................................................................138
of Brunei and Crude Oil Prices.....................................................................................141
6.5 Graph of the Interest Rates of Brunei....................................................................143
for the Inflation Rates of Indonesia..............................................................................145
of Indonesia and Crude Oil Prices................................................................................148
for the Exchange Rates of Indonesia............................................................................150
for the Interest Rates of Indonesia...............................................................................155
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for the Inflation Rates of Malaysia...............................................................................161
of Malaysia and Crude Oil Prices.................................................................................163
for the Exchange Rates of Malaysia..............................................................................166
for the Interest Rates of Malaysia.................................................................................171
for the Inflation Rates of Mongolia...............................................................................177
of Mongolia and Crude Oil Prices................................................................................179
for the Exchange Rates of Mongolia.............................................................................181
for the Interest Rates of Mongolia................................................................................186
for the Inflation Rates of Vietnam................................................................................191
of Vietnam and Crude Oil Prices..................................................................................194
for the Exchange Rates of Vietnam..............................................................................196
for the Interest Rates of Vietnam..................................................................................201
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List of Tables
A. Crude Oil Imports and Exports of
Emerging Oil Exporting Countries..................................................................................1
B. Crude Oil Imports and Exports of
Oil Importing Countries....................................................................................................2
C. A Priori Expectation....................................................................................................20
D. Summary of Results for Oil Importing Countries....................................................32
E. Summary of Results for Emerging Oil Exporting Countries................................. 34
1.1 Augmented Dickey-Fuller Test for Unit Root
of the Inflation Rates of Cambodia.................................................................................59
1.2 Johansen Cointegration Test for the
Inflation Rates of Cambodia and Crude Oil Prices......................................................59
1.3 Granger Causality Test for the
Inflation Rates of Cambodia and Crude Oil Prices......................................................61
of the Exchange Rates of Cambodia...............................................................................63
Exchange Rates of Cambodia and Crude Oil Prices.....................................................63
Exchange Rates of Cambodia and Crude Oil Prices.....................................................66
of the Interest Rates of Cambodia..................................................................................67
Interest Rates of Cambodia and Crude Oil Prices........................................................68
Interest Rates of Cambodia and Crude Oil Prices........................................................70
of the Inflation Rates of Laos..........................................................................................73
Inflation Rates of Laos and Crude Oil Prices................................................................73
Inflation Rates of Laos and Crude Oil Prices................................................................76
of the Exchange Rates of Laos.........................................................................................78
Exchange Rates of Laos and Crude Oil Prices..............................................................78
Exchange Rates of Laos and Crude Oil Prices..............................................................81
of the Interest Rates of Laos............................................................................................83
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Interest Rates of Laos and Crude Oil Prices..................................................................83
Interest Rates of Laos and Crude Oil Prices..................................................................86
of the Inflation Rates of Philippines................................................................................88
Inflation Rates of Philippines and Crude Oil Prices.....................................................88
Inflation Rates of Philippines and Crude Oil Prices.....................................................91
of the Exchange Rates of Philippines..............................................................................92
Exchange Rates of Philippines and Crude Oil Prices...................................................93
Exchange Rates of Philippines and Crude Oil Prices...................................................95
of the Interest Rates of Philippines.................................................................................97
Interest Rates of Philippines and Crude Oil Prices.......................................................98
3.9 Granger Causality Test for the .
Interest Rates of Philippines and Crude Oil Prices.....................................................100
of the Inflation Rates of Singapore...............................................................................103
Inflation Rates of Singapore and Crude Oil Prices.....................................................104
Inflation Rates of Singapore and Crude Oil Prices.....................................................107
of the Exchange Rates of Singapore..............................................................................108
Exchange Rates of Singapore and Crude Oil Prices...................................................109
Exchange Rates of Singapore and Crude Oil Prices...................................................111
of the Interest Rates of Singapore.................................................................................113
Interest Rates of Singapore and Crude Oil Prices......................................................114
Interest Rates of Singapore and Crude Oil Prices......................................................116
of the Inflation Rates of Thailand.................................................................................119
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Inflation Rates of Thailand and Crude Oil Prices.......................................................119
Inflation Rates of Thailand and Crude Oil Prices.......................................................122
of the Exchange Rates of Thailand...............................................................................123
Exchange Rates of Thailand and Crude Oil Prices.....................................................124
Exchange Rates of Thailand and Crude Oil Prices.....................................................126
of the Interest Rates of Thailand...................................................................................128
Interest Rates of Thailand and Crude Oil Prices........................................................129
Interest Rates of Thailand and Crude Oil Prices........................................................131
of the Inflation Rates of Brunei.....................................................................................134
Inflation Rates of Brunei and Crude Oil Prices..........................................................135
Inflation Rates of Brunei and Crude Oil Prices..........................................................137
of the Exchange Rates of Brunei...................................................................................139
Exchange Rates of Brunei and Crude Oil Prices.........................................................140
Exchange Rates of Brunei and Crude Oil Prices.........................................................142
of the Inflation Rates of Indonesia................................................................................146
Inflation Rates of Indonesia and Crude Oil Prices.....................................................147
Inflation Rates of Indonesia and Crude Oil Prices.....................................................149
of the Exchange Rates of Indonesia..............................................................................151
Exchange Rates of Indonesia and Crude Oil Prices....................................................151
Exchange Rates of Indonesia and Crude Oil Prices....................................................154
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of the Interest Rates of Indonesia..................................................................................156
Interest Rates of Indonesia and Crude Oil Prices.......................................................157
Interest Rates of Indonesia and Crude Oil Prices.......................................................159
of the Inflation Rates of Malaysia.................................................................................162
Inflation Rates of Malaysia and Crude Oil Prices.......................................................162
Inflation Rates of Malaysia and Crude Oil Prices.......................................................165
of the Exchange Rates of Malaysia...............................................................................167
Exchange Rates of Malaysia and Crude Oil Prices.....................................................168
Exchange Rates of Malaysia and Crude Oil Prices.....................................................170
of the Interest Rates of Malaysia...................................................................................172
Interest Rates of Malaysia and Crude Oil Prices........................................................173
Interest Rates of Malaysia and Crude Oil Prices........................................................175
of the Inflation Rates of Mongolia................................................................................178
Inflation Rates of Mongolia and Crude Oil Prices......................................................178
Inflation Rates of Mongolia and Crude Oil Prices......................................................181
of the Exchange Rates of Mongolia...............................................................................182
Exchange Rates of Mongolia and Crude Oil Prices....................................................183
Exchange Rates of Mongolia and Crude Oil Prices....................................................185
of the Interest Rates of Mongolia..................................................................................186
Interest Rates of Mongolia and Crude Oil Prices........................................................187
Interest Rates of Mongolia and Crude Oil Prices........................................................189
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of the Inflation Rates of Vietnam..................................................................................192
Inflation Rates of Vietnam and Crude Oil Prices.......................................................193
Inflation Rates of Vietnam and Crude Oil Prices.......................................................195
of the Exchange Rates of Vietnam................................................................................197
Exchange Rates of Vietnam and Crude Oil Prices......................................................198
Exchange Rates of Vietnam and Crude Oil Prices......................................................200
of the Interest Rates of Vietnam....................................................................................202
Interest Rates of Vietnam and Crude Oil Prices.........................................................203
Interest Rates of Vietnam and Crude Oil Prices.........................................................205
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Chapter 1: Introduction
1.1 Background of the Study
Crude oil is an important commodity for people since it is a necessity in the
production and transportation of different commodities that people use on a regular basis.
Indeed, the world would stop operating without crude oil. Factories, cars, trains, and
airplanes are just some of the things that will stop working however, in addition to these,
vehicles and engines that are essential in farming will also result to a complete standstill.
With this, many sectors of the economy will be unfavorably affected by increasing oil
prices.
During 1970, an oil crisis took place which affected various macroeconomic
variables such as inflation rate and unemployment rate (Nordhaus, Houthakker & Sachs,
1980). In this study, the researchers found that the change in the price of crude oil affects
inflation rate, interest rate, and exchange rate in the present time.
Table A. Crude Oil Imports and Exports of Emerging Oil Exporting Countries
Emerging Crude Oil Crude Oil Year

Crude Oil Exports Imports
Exporting
Country
Brunei 117,600 0 2014
Indonesia 391,000 0 2012
Malaysia 244,600 200,200 2012
Mongolia 9,780 0 2012
Vietnam 179,500 0 2012
An emerging crude oil exporting country is a country which possesses the ability to
export oil because of its natural resources. The amount of crude oil in these exporting
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countries are large enough to satisfy the petroleum needs and thus, being able to offer
crude oil to other countries. Moreover, they are also able to export crude oil at a higher
rate as compared to importing countries because of their ability to produce their own.
Emerging oil exporting countries such as Malaysia and Vietnam respectively had a total
of 200,200 crude oil import barrels per day along with 244,600 crude oil export barrels
per day and no crude oil imports along with 179,500 crude oil export barrels per day in
2012. Also as emerging oil exporters, Indonesia and Mongolia respectively had no crude
oil imports along with 391,000 crude oil export barrels per day and 9,780 crude oil export
barrels per day in 2012. To conclude, among the emerging oil exporting countries, only
Brunei did not imported crude oil however in 2014, they exported 117,600 crude oil
barrels per day (Central Intelligence Agency, 2014).
Table B. Crude Oil Imports and Exports of Oil Importing Countries
Crude Oil Crude Oil Crude Oil Year

Country Exports Imports
Importing
Country
Cambodia 0 30,970 2007
Laos 0 3,080 2007
Philippines 13,990 1,503,000 2014
Singapore 5,900 976,100 2012
Thailand 43,110 898,000 2012
A crude oil importing country is a country that does not have the capability to
produce crude oil or has the capability to produce crude oil but not enough to provide for
its people. In 2014, the Philippines, a crude oil importing country, imported 1,503,000
crude oil barrels per day and exported 13,990 crude oil barrels per day. In 2012, Thailand,
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another crude oil importing country, imported 898,000 crude oil barrels per day and
exported 43,110 crude oil barrels per day. Along with Philippines and Thailand, there are
three more crude oil importers such as Singapore which had a total import of 976,100
crude oil barrels per day and exported 5,900 crude oil barrels per day in 2012. Laos which
in 2007 imported 3,080 crude oil barrels per day and had no crude oil exports. Lastly,
Cambodia had a total of 30,970 crude oil import barrels per day and had no crude oil
exports in 2007 (Central Intelligence Agency, 2014).
1.2 Statement of the Problem
The researchers answered the following questions:
● Do crude oil prices affect the inflation rates, exchange rates, and interest rates of
emerging crude oil exporting countries and crude oil importing countries?
● If yes, what is the effect to the emerging crude oil exporting countries and crude oil
importing countries?
● Is there a significant effect in the fluctuations of crude oil prices on the inflation
rates, exchange rates, and interest rates between emerging crude oil exporting countries
and crude oil importing countries?
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1.3 Objectives
The objectives of the study are to determine and compare the effects of crude oil
prices to the Macroeconomic variables such as inflation rates, exchange rates, and interest
rates in Philippines, Singapore, Thailand, Laos, Cambodia, Malaysia, Vietnam, Brunei,
Indonesia and Mongolia from a 10-year timeline. Crude oil prices “Granger Cause”
inflation rates, interest rates and exchange rates in 10 countries from a 10-year timeline
using monthly data.
1.4 Statement of the Hypothesis
X= Philippines, Singapore, Thailand, Laos, Cambodia, Malaysia, Vietnam, Brunei,
Indonesia and Mongolia.
1.)
𝐻0 = Crude oil prices do not “Granger Cause” the inflation rates of country X.
2.)
𝐻1 = Crude oil prices do not “Granger Cause” the exchange rates of country X.
3.)
𝐻0 = Crude oil prices do not “Granger Cause” the interest rates of country X.
4.)
𝐻𝑂 = Crude oil prices and inflation rates of country X do not display cointegration.
5.)
𝐻𝑂 = Crude oil prices and exchange rates of country X do not display cointegration.
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6.)
𝐻𝑂 = Crude oil prices and interest rates of country X do not display cointegration.
7.)
𝐻𝑂 = Inflation rates of country X are not stationary.
8.)
𝐻𝑂 = Exchange rates of country X are not stationary.
9.)
𝐻𝑂 = Interest rates of country X are not stationary.
1.5 Assumptions
To grasp a clear understanding between the researchers and the audience, the
following assumptions have been made:
● The study assumed that inflation affects the purchasing power of people.
● The study assumed that the countries Vietnam, Brunei and Mongolia are emerging
crude oil exporting countries.
● The study assumed that the countries Philippines, Singapore, Thailand, Laos, and
Cambodia are crude oil importing countries.
● The study assumed that crude oil prices are not stable and their movements are
dependent on supply and demand of crude oil and market sentiment.
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1.6 Scope and Limitations
This study limits its coverage within a 10-year duration of the inflation rates,
exchange rates, interest rates, and oil price variations in five emerging crude oil exporting
countries and five crude oil importing countries. The five crude oil exporting countries are
Malaysia, Vietnam, Brunei, Indonesia, and Mongolia while the five crude oil importing
countries are the Philippines, Singapore, Thailand, Laos, and Cambodia. With the
assumptions that crude oil prices affect inflation and that inflation affects the purchasing
power of the consumers, the researchers focused on identifying the effects of the
fluctuations of crude oil prices on the 10 given countries specifically to recognize why
and how crude oil price fluctuations contrarily and/or similarly create impact on the
inflation rates, exchange rates, and interest rates of both exporting and importing
countries. The primary method to acquire the results is through the Granger Causality
Test, a statistical concept for a specific notion of causality in time-series analysis and is
based on prediction wherein a variable X Granger-causes Y if Y can be better predicted
using the histories of both X and Y than it can using the history of Y alone. The overall
time frame of this study will be conducted for 10 years monthly starting 2006 to 2015.
Given that Platts, benchmark for Philippines and Singapore, Tapis, benchmark for
Malaysia, and Indonesia Crude Price for Indonesia are not attainable due to data
constraints, the researchers used the simple average of the three major benchmarks of
crude oil prices namely Brent Blend, Dubai/Oman and West Texas Intermediate (WTI) as
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benchmarks to all countries since these are the mostly traded benchmarks used in the oil
industry.
1.7 Significance of the Study
Crude oil prices and inflation are often perceived to have a cause and effect
relationship. As crude oil prices fluctuate, inflation follows. This is because crude oil
plays an essential role as an input in the economy specifically a necessity to everyone’s
lives. The rise in the price of crude oil has a significant impact in increasing transport,
household, and business costs. Rising prices benefit crude oil exporters such as Malaysia,
Vietnam, Brunei, Indonesia, and Mongolia; however, it is a loss for crude oil importers
namely the Philippines, Singapore, Thailand, Laos, and Cambodia. Higher prices of crude
oil mean higher costs of living. The consumers are the beneficiaries of this research by
being knowledgeable on the value of their money and how crude oil price variations sway
their costs of living. Other beneficiaries like the top down investors, forex investors, oil
companies, public transportation systems, and manufacturing industry of each country
and future researchers will also benefit from this study. This research will also be able to
give out the specific areas where crude oil price variations greatly affect inflation rate,
exchange rate, and interest rate.
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Chapter 2: Review of Related Literature
2.1 Related Literature
The year 1973 was the starting point of the post-war period for both the energy
market and overall economic performance. Moreover, 1973 ended the great post-war
development, a period of rapid economic growth, decreasing unemployment, and a
dramatic surge in living standards. Also, the year 1973 marked the first energy crisis, the
1973-74 oil embargo, and the first oil price shock because the continuous events in energy
markets showed an even stronger discontinuity than in the overall economy. In
conclusion, the variables mostly affected were inflation and real incomes (Nordhaus,
Houthakker & Sachs, 1980).
On the other hand, the repetitive episodes of moderate inflation were a major
characteristic of many OECD economies throughout the 1960s, 1970s, and 1980s. Still
the study shows that repeated occurrence of inflation were usual in these countries and
that these episodes follow a related pattern. The study used a pooled cross-country time
series framework to analyze the reasons associated with the start of 73 inflation episodes
in OECD countries since 1960. Thus, lawmakers' quest of high real growth targets and
national elections were important factors in developing inflation episodes. Furthermore,
other reasons for inflation are increases in the natural rate of unemployment, oil price
shocks, adjustments in the political orientation of governments, and government debt
policy (Boschen & Weise, 2003).
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In the 1970s, striking coincidence of the major oil price increases and the worsening
of stagflation took place. Microeconomic theory concludes that the effect of real-interest
rate variation and output movements on resource prices challenges the fact that major oil
price changes are largely exogenous with respect to macroeconomic variables of OECD
countries. Whereas real interest rates have not been unusually low, continuous growth
rates for the United States have been tremendous to offset the less than stellar growth
performance of Europe and Japan. The origins of stagflation and the possibility of its
recurrence continue to be an important concern among policymakers and in the popular
press. Overall, that crucial part of the Great Stagflation in the 1970s could have been
avoided, only if the Fed did not allowed major monetary expansions in the early 1970s
(Barzky & Kilian,2001).
Following this, the explanation of crude oil as a basic input in the value added
production function is uncertain simply because oil is an imported commodity. Since oil
prices directly affect domestic output, their impact needs to be included by the cost share
of oil in domestic output. In connection to this, fluctuations in energy prices have also
been a unique character of the U.S. economy since the 1970s. Causes such as disturbance
in the Middle East, rising energy prices in the United States, and evidence of global
warming recently have reunited interest in the link between energy prices and economic
performance. So as a result, full-sample estimates based on the purchasing power loss are
associated with a change in weighted retail energy prices. In relation to finance, the
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general view in the literature was that at least the major crude oil price increases were
derived externally with respect to the U.S. economy and that these increases were also
related with political disturbances in the Middle East (Kilian,2008).
It is concluded that the increase in the real price of oil during the years 1973-1974
has been the major cause of inflation and recession both in the United States and abroad.
In addition, the primary cause is based on the perspective of imported oil as a third factor
in the aggregate production function. A relative increase in the price oil will cause an
unfavorable shift in the aggregate supply curve which will result into higher prices with
lower yields. (Darby,1982).
Furthermore, the war between the U.S and Iraq in 2003 had a different effect on the
economy. Still many economists expected that the war would affect the Iraqi oil
production and increase the prices of oil as the economy of U.S. struggles. Yet the effect
of the war was unexpectedly good since the production of oil increased, inflation was
steady, unemployment goes down, and consumers were happy. Indeed, it is
understandable that the economy performed differently from the past oil shocks during
the 1970's. Summing up, there are three reasons why the economy behaved differently
from the 1970's oil shock, the oil shock itself was just a minor shock, the impact of the
transmission mechanism amongst shocks and the rest of the economy was weaker, and
other forces in the macroeconomic environment were working against the oil shocks
(Nordhaus,2007).
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In the 1970’s, the supply of crude oil is coming from the regions the Persian Gulf
and North Africa. It is a region where socio-economic changes have occurred so fast as to
be destabilizing since the instability of the region has regularly led to unbearable cut-offs
in the world's supply of crude oil. One of the reasons why the region has been unstable
during the 1970's is the continuous war happening in the region. The supply side of the oil
market has two important generalizations that can be made. First, oil is a depletable
resource that it becomes more expensive to find and produce. Second, some countries are
located in areas that do not have the incentive to produce them as rapidly as the
industrialized countries would like, that is why it is important for these oil producing
countries to be stable since there is a high demand of oil (Pesaran,1984).
On the other hand, during the 1960s, four major changes occurred in the
international oil industry which were directly related to the evolution of the industry and
of the institutional arrangements within which it operated. The first was the coming into
production of new areas; second, the entry of new companies; third, the weakening of
traditional controls over supply; fourth, the increased influence of host governments. It
can easily be seen that these are all interrelated (Penrose,1979).
Furthermore, during the 1980s the major economic problems were the constant
increase of oil prices and the downfall of Pax Americana. It is well believed that oil
might be the weakness of the Japanese economy. Whereas, in every worldwide oil crisis,
Japan's international balance of payments plunges into deficit along with the value of Yen
25
in the money market. But as Japan may be vulnerable to oil, even with a crisis, Japan
constantly raises its head up high. There are two types of "oil crisis", one where advanced
stockpiling of oil is the solution, and the other where an economic stabilization policy
called "supply management" must be applied. As oil crisis causes a trilemma wherein it
will adjust domestic prices, increase unemployment, and lower the growth rate. Thus, the
response must be made swiftly in order to prevent oil price inflation from affecting the
domestic economy and the separation of the increasing domestic prices from the
permanent inflation. Along with Japan's vulnerability to the power of oil, the American
economy is heavily dependent on it as well (Yoshitomi,1980).
On the other hand, a country that imports oil will have its real national income
reduced which means that less cash or resources will be used for other government
expenditures. When a country does not have the capability to produce oil, that country
must buy oil from other countries to support the daily needs of its people. In addition, the
study of Ian Lienert, OECD Secretariat, focuses on the macroeconomic consequences of
the oil price hike of the OPEC oil during 1979 to 1980. Since the price of oil is going up,
the government has an option to reduce the inflationary impact by diminishing indirect
taxes or by attempting to influence wage settlements. It may offset the demand reduction
and adverse employment effects by increasing subsidies and other transfers, or by
decreasing income taxes of households or businesses, or by increasing government
expenditure elsewhere (Lienert,1981).
26
Producers and agencies, either from local government or private companies, have
planned to lessen uncertainties in the market by agreeing on market-sharing, specifically
in the oil industry. For the past years, price-cutting or price increases in periods of relative
abundance of supplies have been defined as tools to raise profits and expand market
shares. Moreover, during the 1970s, oil companies needed to grow sales by fixing a low
price for oil. This was because of two factors: their aim to substitute for coal and the large
quantities of oil in the Middle East, whose production would extend beyond the
companies' contracted periods. Also, since the Chief Executive of a transnational oil
company has admitted that industry pricing policy did not reflect the scarcity value of oil,
it resulted to a high expansion of demand. For the leaders of OPEC countries in the
1950’s and 1960’s, they practiced the cheap energy policy and thus, decreasing the
development of their countries’ in order to finance the industrialised countries'.
Thereafter, it was reversed by the huge international distribution of income and wealth
from oil consumers to oil producers in the 1970s and early 1980s. Together with other
countries, capital-exporting countries have suffered from worldwide inflationary
pressures and the depreciation of the US dollar (Mikdashi, 1981).
Finally, this study compared Europe to the USA is more vulnerable to the
dissimilarities made as an effect by OPEC. The impact of an oil price increase in its
responding part is directed towards exports, where there is an increase in production but
allows no direct increase on its domestic demand and with the help of empirical analysis
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the sign and magnitude of the overall impact on GDP was determined. The measure of
OPEC responding for the years 1973-1974 and 1979-1980 were compared, indicating that
it took them a 5 years for the OPEC to reach its peak of 73% during the first oil price
shock, while for the second round of the oil price shock, the respending ratio lowered
down. The impact of an oil price increase on OECD GDP becomes affirmative when
responding ratio increases to 40-45% range, while having to face drastic deficits in their
balance of payments and high inflation rates. Given this, OECD countries were obliged to
adjust to the changes in world income distribution by reducing demand and increasing
export quantity. This considers that the degree of the responding is crucial for the impact
of oil price increase on the industrial economies (Fabritius & Peteren,1981).
In comparison, the review of related literatures are basically divided into two
categories. First, oil during the 1960's, 1970's, and 1980's which focused on the oil
embargo and the great stagflation that occured during these past years. Second area is the
oil importation and oil exportation which empasize on the major crude oil supply that
came from the regions of Persian Gulf and North Africa. These two discussed the overall
history of the impact of the crude oil price into the different sectors of the economy in
various countries. Moreover, the literatures about crude oil fluctuations have a positive
and negative influence in the industries.
28
2.2 Research Gap
This study is different from other studies since the researchers compared the effects
of crude oil prices to the inflation rates, exchange rates, and interest rates of emerging
exporting countries and importing countries. Also, studies done during 1980’s focused
more on the macroeconomy of countries that were affected by the oil embargo in the
1970’s. Furthermore, the proponents also compared the effects of crude oil prices to the
inflation rates of five oil importing countries namely the Philippines, Singapore, Thailand,
Laos, and Cambodia and five emerging exporting countries such as Malaysia, Vietnam,
Brunei, Indonesia, and Mongolia.
29
2.3 Literature Map
The Impact of Crude Oil Prices to the Inflation Rates, Exchange Rates and Interest
Rates in Emerging Oil Exporting Countries and Oil Importing Countries
Oil Crisis in the 1970's by

Nordhaus, Houthakker & Sachs Middle East as a Supplier of Oil by
(1980) and Nordhaus (2007) Pesaran (1970)
Inflation Episodes Caused by Oil 4 Major Changes in the Oil

Shocks During 1960's, 1970's and Industry During the 1960's by
1980's by Boschen and Weise Penrose (1979)
(2003)
Stagflation & Oil as a Commodity Oil as a Weakness of the Japanese

by Barzky & Kilian (2001) & Economy by Yoshitomi (1980)
Kilian (2008)
Oil Importing Country, How

Producers Price Oil and Solutions
Effects of High Oil Prices by Darby
to Oil Shocks by Lienert (1981),
(1982)
Mikdashi (1981) and Fabritius &
Petersen (1981)
30
Chapter 3: Framework
3.1 Theoretical Framework
Law of Demand and Supply of Oil
The law of supply and demand plays a huge role in determining the price of crude
oil. One of the major factors in determining the best option is where companies in the oil
industry will have to allocate the resources that they have. There are incentives created by
price that influences the behavior eventually becomes a way to determine the price of
crude oil. For instance, consumers would make use of more efficient vehicles in order to
save oil or will result to using alternative for transportation. Also, the business sector
would find alternatives to conserve energy and this will result to a decrease in the demand
of oil. On the supply side, when prices are high companies tend to have more drilling
projects than the usual and thus, a tantamount amount is allocated for research to have
more efficient projects. (Yang, 2016).
Purchasing Power Parity
Purchasing power parity is a theory in economics wherein the conversion of a
currency would be the estimated unit of another currency in order to have the same value
in purchasing goods and services in the market. Also, it serves as a scale for future
adjustments on the exchange rates that would result to an equal purchasing power of each
of the countries. (Yang, 2016).
31
Law of One Price
The law of one price is an economic theory wherein exchange rates would be of
equal value with respect to security, commodity or asset. This theory would back up
Purchasing power parity. Moreover, if the price of assets would not be tantamount to the
different markets, then the arbitrage would buy to the markets, which sells the cheaper
assets, which they sell at country with higher price. On the other hand, if it does not have
an effect on the Purchasing Power Parity, the profits in the arbitrage would not stop
unless prices would be equal with different markets. The law of one price is used in order
to cut the investor’s advantages over the difference of price in different markets this
situation is known to be an arbitrage. Commodities are bought with the transportation cost
of the good be included, creating a difference depending on the location in prices in the
market. This can be a signal for shortage or excess of goods in the region (Yang, 2016).
32
3.2 Operational Framework
This study showed that fluctuations of crude oil prices “Granger Cause” the
headline inflation rate, nominal interest rate, and the average exchange rate of crude oil
importing and exporting countries.
Crude Oil
Price Inflation Rate
(Headline)
Brent Blend Emerging Oil

Interest Rate Exporting
(Nominal) and Oil
Importing
Countries
Dubai/Oman
Exchange Rate
(Average per month)
West Texas
Intermediate
33
A Priori Expectation
Table C. A Priori Expectation

When Crude Oil Prices Crude Oil Exporting Crude Oil Importing
Go Up Countries (+/-) Countries (+/-)
Inflation Rate
- -
Exchange Rate
+ -
Interest Rate
+ -
Increase in crude oil prices are expected to positively affect the exchange rates and
interest rates of emerging crude oil exporting countries. Their exchange rates become
stronger since they are supplying crude oil and the cost of borrowing will be low since
crude oil is one of the most important commodities and buying it in an emerging crude oil
exporting country is cheaper. However, increases in the prices of crude oil are expected to
negatively affect the inflation rates of emerging crude oil exporting countries. Their
inflation rates go up since there is a high demand for crude oil giving less purchasing
power. On the other hand, increases in the prices of crude oil are expected to negatively
affect crude oil importing countries. Inflation rates go up since crude oil prices are now
expensive giving less purchasing power for the value of money and exchange rates
become weaker and the cost of borrowing will be expensive.
34
3.3 Definition of Terms
Brent Blend
Brent indicates oil from four different fields in the North Sea namely Brent,
Forties, Oseberg, and Ekofisk. In these regions stated, crude is light and sweet and thus, it
is considered ideal for the refining of diesel fuel, gasoline, and other high-demand
products. Moreover, since the supply is water-borne, it is more convenient to transport to
distant locations. An estimated two-thirds of all crude contracts around the world
reference Brent Blend, referring it the most widely used marker of crude oil (Kurt,2015).
Crude Oil Price – Independent Variable
Crude oil, a naturally occurring, unrefined petroleum product is composed of
hydrocarbon deposits and other organic material. It has the ability to be refined into
usable products such as gasoline, diesel, and various forms known as “petrochemicals”.
Furthermore, crude oil is generally obtained through oil drilling and the process is as
follows: first, crude oil is purified. Second, it is processed into a variety of forms such as
gasoline, kerosene, and asphalt. And finally, it is sold to consumers (Kurt,2015).
35
Dubai/Oman
Dubai or Oman, a Middle Eastern crude, is a crucial reference for oil of a slightly
lower grade than WTI or Brent. A “basket” product that consists of crude from Dubai,
Oman or Abu Dhabi, is somewhat heavier and has higher sulfur content, and thus,
belonging in the “sour” category. Dubai/Oman is the main reference for Persian Gulf oil
delivered to the Asian market (Kurt,2016).
Exchange Rate – Dependent Variable
Exchange rate, the value of one currency for the purpose of conversion to another,
is the price of a nation’s currency in terms of another currency and is composed of the
domestic currency and foreign currency. In a direct quotation, the price of a unit of
foreign currency is expressed in terms of the domestic currency. In an indirect quotation,
the price of a unit of domestic currency is expressed in terms of the foreign currency
(Yang, 2016).
Inflation Rate – Dependent Variable
Inflation rate, the measurement of how fast a currency loses its value, is basically
the study of how prices of goods and services are highly volatile over time and how much
less a unit of currency can buy now compared to a unit of currency at a given time in the
past. Moreover, it is a measure of changing prices, normally calculated on a month to
month and a year to year basis and reflected as a percentage. Thus, inflation is an
36
important economic statistic mainly because it affects the value of money and indicates
the overall stability of a country's economy. In addition, it should be noted that high rates
of inflation increase costs and can make a country's exports less competitive in the global
marketplace (Yang, 2016).
Interest Rate - Dependent Variable
Interest rate is the proportion of a loan that is charged as interest to the borrower.
This could be in the form of cash, consumer goods, and large assets such as buildings,
vehicles, or machineries. Interest is essentially a rental, or leasing charge to the borrower,
for the asset's use (Yang, 2016).
West Texas Intermediate
West Texas Intermediate or also known as “WTI” refers to oil that are drawn from
wells in the U.S. and transferred via pipeline to Cushing, Oklahoma. And since these
supplies are landlocked, they are relatively expensive to ship to certain parts of the globe
thus, making it a disadvantage for West Texas Intermediate. However, the product itself is
very light and very sweet hence, making it the perfect product for gasoline refining. Now,
WTI still continues to be the main benchmark for oil consumed in the United States (Kurt,
2015).
37
Chapter 4: Methodology
4.1 Research and Sampling Design
The research design used for the study involves using Granger causality, a method
that determines whether past observations of an independent variable, alongside past
observations of the variable being forecasted, explains the dependent variable than when
only past values of the dependent variable is used.
The method utilized by the researchers used time series analysis to gather and
compare data. Time series analysis method is directed towards determining the nature of a
situation as it exists at the time frame that was chosen for the study (Greene,2003). Given
the hypothesis that crude oil price influences inflation rates, exchange rates, and interest
rates, the rationale for the use of this method is in determining the presence and the
specific effects of crude oil price variations for both importing and emerging exporting
crude oil countries on inflation rates, exchange rates, and interest rates. Dependent
variables are the inflation rates, exchange rates, and interest rates of importing and
exporting crude oil countries while the independent variable is the crude oil price.
Depending on the results of the preliminary tests, VAR or VECM will be used to analyze
the data.
This research used secondary data from financial reports of crude oil importing
and emerging crude oil exporting countries from the year 2006 to 2015. Financial reports
from these years were chosen first, for its availability; second, for being the most
38
appropriate source of data to obtain the researchers’ desired results. The selected
countries with respect to crude oil importing countries are Philippines, Singapore,
Thailand, Laos, and Cambodia. While emerging crude oil exporting countries are
Malaysia, Vietnam, Brunei, Indonesia, and Mongolia.
4.2 Data Description and Collection Method
The researchers used the simple average of the three major crude oil benchmarks around
the world namely Brent Blend, West Texas Intermediate, and Dubai/Oman since these are
the mostly traded benchmarks used in the oil industry. Also, the countries in the study
used different benchmarks and data collection since other benchmarks were not
attainable. The researchers also used headline inflation rates, exchange rates, and nominal
interest rates of emerging oil exporting countries and oil importing countries. The
researchers gathered the data needed from different sources. First, crude oil prices were
taken from the International Monetary Fund. Headline inflation rate and nominal interest
rate of emerging crude oil exporting countries and crude importing countries were
collected from different government agencies of each country which can be downloaded
from www.ieconomics.com. Lastly, exchange rate was collected from www.fxtop.comoil
wherein the average of each country's exchange rate is listed on a monthly basis. To
validate the results of the study, the researchers also conducted interviews on industry
experts, economists, and bankers.
39
4.3 Method of Data Analysis
To determine which models are to be used, two preliminary tests were ran: the Unit
Root Test and Cointegration Test. The Unit Root Test, specifically the Augmented
Dickey Fuller Test, checks whether each of the variables are stationary or not. If all
variables are stationary, then the observations can be explained through simple regression.
However, if one of the variables is deemed non-stationary, then time series analysis will
be needed to explain the data.
Time series data was then subjected to the Johansen Cointegration Test, where all
possible pairs of variables will be tested on whether their paired behavior display
cointegration. If any pair is cointegrated, then the Vector Error Correction Model
(VECM) will be used. Otherwise, the Vector Autoregression Model (VAR) is the
appropriate model to use.
The next step was to determine the lag, p, which will provide the best fit for the
model. To know this, different lagged values were fitted to the model and the AIC, SBIC,
HQIC, FPE, and LR values of each of the models were compared. The model with the
lowest value on the AIC, SBIC, HQIC, FPE, and LR category will then be selected.
Once the model VAR(p) or VECM(p) has been identified for interest rate, inflation
rate, and exchange rate of all countries, Granger Causality test was ran to determine if
crude oil prices “Granger Cause” any of the macroeconomic variables at any of the
countries.
40
Displayed below are the VAR models that were used in analyzing each of the
dependent variables for all countries:
𝑃 𝑄
𝐼𝑅𝑡 = 𝛼𝑜 + ∑ 𝛼1𝑡 𝐼𝑅𝑡−1 + ∑ 𝛼2𝑡 𝑂𝑃𝑡−1 + 𝜀1𝑡

𝑖=1 𝑖=1
𝑚 𝑛
𝐸𝑅𝑡 = 𝛽𝑜 + ∑ 𝛽1𝑡 𝐸𝑅𝑡−1 + ∑ 𝛽2𝑡 𝑂𝑃𝑡−1 + 𝜀2𝑡

𝑖=1 𝑖=1
𝑔 ℎ
𝐼𝑛𝑓𝑅𝑡 = 𝛿𝑜 + ∑ 𝛿1𝑡 𝐼𝑛𝑓𝑅𝑡−1 + ∑ 𝛿2𝑡 𝑂𝑃𝑡−1 + 𝜀3𝑡

𝑖=1 𝑖=1
Where:
IR – Interest Rate
ER – Exchange Rate
Inf 𝑅𝑡 - Inflation Rate
OP – Oil Price
𝛼𝑜 , 𝛽𝑜 , 𝛿𝑜 – Constant Term
𝜀1𝑡 , 𝜀2𝑡 , 𝜀3𝑡 – Error Term
T – Time
𝛼1𝑡 , 𝛼2𝑡 , 𝛽1𝑡 , 𝛽2𝑡 , 𝛿1𝑡 , 𝛿2𝑡 – Coefficients
p, q, m, n, g, h – Lags
4.4 Methodological Limitations
The VAR or VECM model generated in the paper was only used to determine
Granger Causality between variables. The paper did not include other uses of VAR or
VECM models such as forecasting or impulse response functions (Greene, 2003).
41
Statistical Models Used to Run the Data
1.) Johansen Cointegration Test
The Johansen Cointegration Test is a procedure for testing cointegration of several
time series by examining the number of independent linear combinations (k) for an m
time series variables set that yields a stationary process. It permits more than one
cointegrating relationship amongst its variables. There are two types of Johansen test,
either with trace or with eigenvalue. The trace test examines the number of linear
combinations (i.e. ) to be equal to a given value ( ), and the alternative hypothesis for
to be greater than while the eigenvalue test asks the same central question as the
Johansen test. The difference, however, is an alternate hypothesis (Greene, 2003).
Trace Test Hypothesis:
Johansen Cointegration Test
2.) Augmented Dickey-Fuller Test
The Augmented Dickey-Fuller Test is a statistic and an econometric tool used to
determine whether a unit root, a feature that can cause issues in statistical inference, is
present in an autoregressive model. The formula is appropriate for trending time series
42
like asset prices. The usual Dickey-Fuller Test uses the simplest approach to test for a unit
root, but most economic and financial times series have a more complicated and dynamic
structure than can be captured by a simple autoregressive model, which is where the
augmented Dickey-Fuller test comes into play. It is augmented in the sense that it is the
successor of the original Dickey-Fuller Test since it comprises a larger and more
complicated set of time series models (Greene, 2003).
Augmented Dickey-Fuller Test Hypothesis:
Augmented Dickey-Fuller Test Equation:
3.) Granger Causality
Granger causality, a statistical concept for a specific notion of causality in time-
series analysis, is based on prediction wherein an independent variable Granger-causes a
dependent variable if the present value of the dependent variable can be better predicted
using the histories of both independent variable and dependent variable than it can using
the history of the dependent variable alone. This formula is based on linear regression
modeling of stochastic processes. More complex extensions to nonlinear cases exist,
43
however these extensions are usually more difficult to apply in practice (Greene, 2003).
Granger causality is often tested in the context of linear regression models. For
illustration, consider a bivariate linear autoregressive model of two variables X1 and X2 :
4.) Vector Autoregression
VAR is usually used in macroeconomics if the the paired data is not cointegrated
and is represented by the equation:
where 𝜀𝑡 is a vector of non autocorrelated disturbances with zero means and
contemporaneous covariance matrix E[𝜀𝑡 𝜀𝑡′ ]= 𝛺. The VAR can also be written as 𝛤(𝐿)𝑦𝑡 =
𝜇 + 𝜀𝑡 . where 𝛤(𝐿) is a matrix of polynomials (Greene,2003).
The individual equations are:
44
indicates the (l,m) element of 𝛤𝑗 . The motivation behind the VARS in macroeconomics
runs deeper than the statistical issues. The large structural equations model of the 1950s
and 1960s were built on a theoretical foundation that have not proved satisfactory. The
forecasting performance of VARs surpassed the large structural models.
5.) Vector Error Correction Model
The Error Correction Model illustrates the variation in 𝑦𝑡 around its long-run trend
in terms of a set of I(0) exogenous factors 𝑥𝑡 , the variation of 𝑧𝑡 around its long-run
trend, and the error correction (𝑦𝑡 − 𝜃𝑧𝑡 ) ,which is the equilibrium error in the model of
cointegration.
45
Chapter 5 – Results and Discussion
In doing the analysis of the study, the researchers separately ran the dependent
variables (Inflation Rates, Exchange Rates, Interest Rates) against the independent
variable (Crude Oil Prices) for importing countries (Cambodia, Laos, Philippines,
Singapore, and Thailand) and exporting countries (Brunei, Indonesia, Vietnam, Malaysia,
and Mongolia) using Stata. Below are the results:
Table D. Summary of Results for Oil

Importing Countries
Inflation Exchange Interest

Country Criteria
Rates Rates Rates
Granger ∕ ∕ ∕
Cambodia Not
granger
Granger ∕
Laos Not
granger ∕ ∕
Oil Granger ∕ ∕
Importing Philippines Not
Countries granger ∕
Granger ∕
Singapore Not
granger ∕ ∕
Granger ∕
Thailand Not
granger ∕ ∕
On Table D, all the oil importing countries are listed. The researchers rejected all
null hypothesis (𝐻0 : Crude Oil Prices do not Granger Cause" the Inflation Rates of
Cambodia, (𝐻0 : Crude Oil Prices do not "Granger Cause" the Exchange Rates of
Cambodia, (𝐻0 : Crude Oil Prices do not "Granger Cause" the Interest Rates of Cambodia)
46
of Cambodia since all dependent variables are affected by the fluctuations of Crude Oil
Prices (See Appendix A). The researchers rejected the null hypothesis for the Inflation
Rates (𝐻0 : Crude Oil Prices do not "Granger Cause" the Inflation Rates of Laos and 𝐻0 :
Crude Oil Prices do not "Granger Cause" the Inflation Rates of Thailand) of Laos and
Thailand since the Inflation Rates of Laos and Thailand are affected by the fluctuations of
Crude Oil Prices. The researchers did not reject the null hypothesis for Exchange Rates
(𝐻0 : Crude Oil Prices do not "Granger Cause" the Exchange Rates of Laos and 𝐻0 : Crude
Oil Prices do not "Granger Cause" the Exchange Rates of Thailand) and Interest Rate
Rates (𝐻0 : Crude Oil Prices do not "Granger Cause" the Interest Rates of Laos and 𝐻0 :
Crude Oil Prices do not "Granger Cause" the Interest Rates of Thailand) for Laos and
Thailand since the Exchange and Interest Rates of both countries are not affected by the
fluctuations of Crude Oil Prices (See Appendix B and E). The researchers rejected the
null hypothesis for Inflation Rates (𝐻0 : Crude Oil Prices do not "Granger Cause" the
Inflation Rates of Philippines) and Exchange Rates (𝐻0 : Crude Oil Prices do not "Granger
Cause" the Exchange Rates of Philippines) of Philippines since the Inflation and
Exchange Rates of Philippines are affected by the fluctuations in Crude Oil Prices. The
researchers did not reject the null hypothesis for Interest Rates (𝐻0 : Crude Oil Prices do
not "Granger Cause" the Interest Rates of Philippines) since the Interest Rates of
Philippines is not affected by the fluctuations in Crude Oil Prices (See Appendix C).
Lastly, The researchers did not reject the null hypothesis for Inflation Rates (𝐻0 : Crude
Oil Prices do not "Granger Cause" the Inflation Rates of Singapore) and Interest Rates
47
(𝐻0 : Crude Oil Prices do not "Granger Cause" the Interest Rates of Singapore) of
Singapore since the Inflation and Interest Rates of Singapore are not affected by the
fluctuations in Crude Oil Prices. The researchers rejected the null hypothesis for
Exchange Rates (𝐻0 : Crude Oil Prices do not "Granger Cause" the Exchange Rates of
Singapore) of Singapore since the Exchange Rates of Singapore is affected by the
fluctuations in Crude Oil Prices (See Appendix D).
Table E. Summary of Results for

Emerging Oil Exporting Countries
Inflation Exchange Interest

Country Criteria
Rates Rates Rates
Granger
Brunei Not
granger ∕ ∕ ∕
Granger ∕ ∕
Indonesia Not
granger ∕
Emerging
Granger ∕
Oil
Malaysia Not
Exporting
granger ∕ ∕
Countries
Granger ∕
Mongolia Not
granger ∕ ∕
Granger ∕ ∕
Vietnam Not
granger ∕
On Table E, all the oil emerging exporting countries are listed. The researchers did
not reject all null hypothesis (𝐻0 : Crude Oil Prices do not Granger Cause" the Inflation
Rates of Brunei, 𝐻0 : Crude Oil Prices do not "Granger Cause" the Exchange Rates of
Brunei and 𝐻0 : Crude Oil Prices do not "Granger Cause" the Interest Rates of Brunei) for
48
Brunei since all dependent variables are not affected by the fluctuations in Crude Oil
Prices (See Appendix F). The researchers rejected the null hypothesis for Inflation Rates
(𝐻0 : Crude Oil Prices do not “Granger Cause" the Inflation Rates of Indonesia) and
Exchange Rates (𝐻0 : Crude Oil Prices do not “Granger Cause" the Exchange Rates of
Indonesia) of Indonesia since the Inflation and Exchange Rates of Indonesia are affected
by the fluctuations in Crude Oil Prices. The researchers did not reject the null hypothesis
for Interest Rates (𝐻0 : Crude Oil Prices do not “Granger Cause" the Interest Rates of
Indonesia) of Indonesia since the Interest Rates of Indonesia is not affected by the
fluctuations in Crude Oil Prices (See Appendix G). The researchers did not reject the null
hypothesis for Exchange Rates (𝐻0 : Crude Oil Prices do not Granger Cause" the
Exchange Rates of Malaysia) and Interest Rates (𝐻0 : Crude Oil Prices do not “Granger
Cause" the Interest Rates of Malaysia) of Malaysia since the Exchange Rates and Interest
Rates of Malaysia are not affected by the fluctuations in Crude Oil Prices. The researchers
rejected the null hypothesis for Inflation Rates (𝐻0 : Crude Oil Prices do not “Granger
Cause" the Inflation Rates of Malaysia) of Malaysia since the Inflation Rates of Malaysia
is not affected by the fluctuations in Crude Oil Prices (See Appendix H). The researchers
did not reject the null hypothesis for Inflation Rates (𝐻0 : Crude Oil Prices do not
“Granger Cause" the Inflation Rates of Mongolia) and Interest Rates (𝐻0 : Crude Oil
Prices do not “Granger Cause" the Interest Rates of Mongolia) of Mongolia since the
Inflation and Interest Rates of Mongolia are not affected by the fluctuations in Crude Oil
Prices. The researchers rejected the null hypothesis for Exchange Rates (𝐻0 : Crude Oil
49
Prices do not “Granger Cause" the Exchange Rates of Mongolia) of Mongolia since the
Exchange Rates of Mongolia is not affected by the fluctuations in Crude Oil Prices (See
Appendix I). The researchers rejected the null hypothesis for Inflation Rates (𝐻0 : Crude
Oil Prices do not “Granger Cause" the Inflation Rates of Vietnam) and Interest Rates (𝐻0 :
Crude Oil Prices do not “Granger Cause" the Interest Rates of Vietnam) of Vietnam since
the Inflation and Interest Rates of Vietnam are affected by the fluctuations in Crude Oil
Prices. The researchers did not reject the null hypothesis for Exchange Rates (𝐻0 : Crude
Oil Prices do not “Granger Cause" the Inflation Rates of Indonesia) of Vietnam since the
Exchange Rates of Vietnam is not affected by the fluctuations in Crude Oil Prices (See
Appendix J).
Determinants of the Variables
Crude Oil Prices
Crude oil, being one of the most sought for commodity, is known to create a
significant impact in the economy. Supply and demand together with market sentiment
are huge factors in determining the price of crude oil, as demand increases the supply
would decrease, thus, a result prices would increase. If demand would decrease with as an
effect to this, then supply would increase and as a result, prices should go down. The
second factor in determining the price of crude oil is market sentiment. The belief that oil
demand would increase in the future would make oil prices increase which makes hedgers
50
and speculators to want to acquire more oil futures contracts. On the other hand, the belief
that demand on oil would decrease in the future would likely decrease oil prices. As a
result, the hedgers and speculators would sell the oil futures contracts (Kurt, 2015).
Inflation Rates
Large surges in money quantity, especially if it exceeds the nominal GDP growth,
risk accelerating the inflation rate. On the other hand, oil price fluctuations exert an
important influence on inflation. Furthermore, the increase for prices in abroad that a
country purchases, if not counteracted by a revaluation of the currency, exerts a pressure
on the price level (Piana, 2001).
Interest Rates
Interest rate levels play a significant role in the supply and demand of credit. An
increase in the demand for credit will raise interest rates, while a decrease in the demand
for credit will consequently decrease interest rates. Inflation will likewise influence
interest rate levels. The higher the inflation rate, the higher the chances of interest rates
rising. Lastly, the government has the power in how interest rates are affected (Kurt,
2015).
51
Exchange Rates
Exchange rate, one of the most important means through which a country’s
relative level of economic health is determined, provides a window to its economic
stability and thus, it is constantly watched and analyzed. More so, some of its
determinants are inflation rates, interest rates, country’s current account or balance of
payments, government debt, terms of trade, political stability and performance, recession,
and speculation. All of these factors determine the foreign exchange rate fluctuations.
Impact of Oil in Oil Importing Countries
Cambodia
Cambodia, a crude oil importing country that highly depends on their oil imports in
maintaining their manufacturing sector, increases consumer price in order to operate their
production cost. Because of this, it will affect the inflation rates. So in general, crude oil
price is considered an inflationary factor in Cambodia. And since the National Bank of
Cambodia does not set an official interest rate, the rate is dependent on the average of the
deposit rate. Hence, it greatly depends on inflation. For Cambodia’s exchange rate, it is
affected mainly when oil companies increase price of oil due to lowering of GDP and
thus, resulting to more restricted policies by the government (Sovan, 2010).
Laos
According to the National Statistics Bureau of Laos, the driving forces of inflation
are the increasing prices of food and non-alcoholic beverages, which rose by 14.7 percent
52
while transport and communication costs rose 10.91 percent after a spike in world oil
prices. As for its interest rate, it was announced that it would keep its interest rate
unchanged at 5%, despite the pressure of rising inflation. The government had committed
only to keep inflation below the GDP growth rate; there was no need to introduce any
specific measures for as long as the rate of inflation remained below the pace of growth.
Lastly, the exchange rate of the Lao Kip stayed stable against the US dollar. It grew
against regional currencies. The real exchange rates keep on appreciating, influencing the
aggressiveness and competitiveness of Lao exports like crude oil (Lao, 2015).
Philippines
The impact of lower oil prices is generally positive to oil-importers like the
Philippines. Lower oil prices helps decrease the cost of living by lowering transport
costs. Falling oil prices should also help bring down inflation. Lower oil prices will
directly result into lower fuel costs and retail electricity prices. Lower oil prices, if
sustained, should have a positive effect on inflation. A decrease in oil prices could lead to
higher purchasing power and consumer spending (Sy, 2014). The newest baseline
inflation forecasts are lower for 2016-2017. The downward shift in the estimated inflation
path for 2016 and 2017 could be attributed mainly to the sharp drop in global crude oil
prices (BSP, 2016). As an oil importing country, a weaker peso leads to higher prices in
peso terms for imported goods and services. For example, a weak peso will negate the
53
impact of falling crude oil prices abroad. The prices of gasoline and other petroleum
products could have been lower had the peso not depreciated against the dollar. Cheaper
fuel prices would have triggered a reduction in transport fares and food prices (Wootton,
2015). Meanwhile, low inflation rates help the BSP keep interest rates low, which will
further help consumption and investment. Most of the country’s manufacturing industries
would benefit from the situation as production costs would go down since the cost to
borrow money is low.
The researchers conducted an interview and according to Mr. Emil Uy, a former
Deutsche Bank Financial Analyst and now a Trust Portfolio Manager at Rizal
Commercial Banking Corporation, oil prices have an impact on inflation in the
Philippines since it directly affects almost all commodities most especially when
considering the cost for transport/freight/logistics. The added cost is passed on to the
consumers/buyers which ultimately increases the prices of the commodities. Also,
according to him, oil prices have an impact on the exchange rates of the Philippines since
oil producing countries can manipulate the price of oil. Given that Philippines is
dependent in importing oil, the higher the oil price, the more peso needed to purchase US
dollar to buy oil and hence, ultimately weakening the peso. Lastly, for interest rates, he
said that it is more likely that interest rates are the variables affecting oil prices; the higher
the interest, the less money to buy oil aside from necessities. But in some cases like scarce
supply of oil (e.g. Stoppage in oil production, calamities in oil producing countries, etc.)
54
where oil producers will have to price their oil at a higher price to recover their losses;
only those who can afford the high cost can purchase the oil and others will result to
borrowing in order to meet their needs and therefore, will drive the interest rates. A
second interview was conducted and according to Mr. Tomas Tiu, former Vice President,
Country Business Manager for Philippines and Micronesia of Citibank TPS and Finance
professor in De La Salle University and University of Santo Tomas, oil price increases
have an inflationary effect when they increase significantly because a large part of the
economy depends on oil like the transportation industry to carry goods across the country
and to move people around or to generate electricity. When oil prices go up, the cost of
transporting goods by whatever mode like trucks, ships, and planes will also tend to go
up. Manufacturers will have to pass on the higher cost of transportation to customers.
Transportation costs of people moving from one place to another using bus, cars, trains,
planes or ships will also follow. Moreover, transportation companies will have to
increase prices as well. Overall, the increasing costs will increase the cost of living in
general. For employees, they will now have to ask for wage increase to cope with higher
cost of living. Prices of goods generally increase faster when oil prices increases
significantly. The effects of an oil price increase against an oil price decrease are not
linear. For interest rates, when oil prices increases very significantly for instance, during
the 1970’s and 1980’s when oil prices increased multiple times, this had severe impacts
on the Philippine GDP and balance of payments and thus, affecting fiscal and monetary
policy. As significant oil prices increase invariably, inflation also goes up. When
55
inflation rates go up significantly, the government has to raise interest rates to cool
inflation rates. Interest rates have a direct bearing on the foreign exchange rates since it is
a component is determining forward rates. Lastly for the exchange rates, the important
distinguishing fact is that oil prices must increase/decrease significantly to have an impact
on the foreign exchange. Small increases or decreases doe not have a significant impact
on the foreign exchange rate of the Philippine peso (See Appendix K).
Singapore
The inflation of Singapore improved during the first quarter of 2015. It fell from
1.1% to -0.3% due to the plunge of oil prices in late 2014. Due to this, oil related items
including petrol and electricity fell sharply (Monetary Authority of Singapore, 2015).
Over the past six months, Singapore had been experiencing a decline in currency. As
against the US dollar, the Singapore dollar depreciated by more than 7% as against the US
dollar. This is its lowest point since 2010. Even in the Forex markets, Singapore appears
to take a hit than most major currencies. According to Deutsche Bank, this is attributed to
the recent decrease in oil prices. The Monetary Authority of Singapore imposed a strict
exchange rate-based monetary policy, which targets to focus on price stability for
sustainable economic growth. Singapore’s policy is long centered on the exchange rate.
However, the Monetary Authority of Singapore decided to change the monetary policy
and to loosen it up to adjust to a few changes brought about by the decrease in oil prices.
56
Lower oil prices will be expected in the Singapore market in 2015. With the decrease in
prices helping to reduce inflation rates, Central Banks are able to keep interest rates
lower. As interest rates are about the cost of borrowing funds, the decrease will have a
positive impact on businesses (Wen, 2014).
Thailand
Oil price changes can be influential on determining the economic performances. For
the case of Thailand, long-run relationship between oil price changes and inflation has
significant effects on determining the headline inflation. Moreover, Thailand imports 90
percent of its crude oil, at a cost of about $25 billion last year. That amounts to 15 percent
of Thailand's gross national product. Thailand's economy relies heavily on export income,
but the growth of exports has slowed as the cost of imported oil has risen contributing to
trade and current account deficits. Those have the spin-off effects of a weaker Thai baht
and pressure on the central bank to raise interest rates. The increased energy costs, higher
interest rates and slide in consumption translate into slower economic growth for
Thailand. In this country, crude oil prices volatility cause exchange rate to appreciate or
depreciate. Policy makers should be aware of the volatility or uncertainty in the foreign
exchange markets caused by uncertainty in the price of oil (Wong, 2015).
57
Impact of Crude Oil in Emerging Oil Exporting Countries
Brunei
The main reason why Brunei is not affected by the fluctuations of crude oil prices is
because Brunei’s currency, the Brunei dollar, is pegged to the Singapore dollar, and thus
this greatly helped in containing inflation. For the interest rates, the Brunei Bankers
Association manages the nominal interest rate and it has remained constant at 5.5% since
year 2000 (Briegel,2012).
Indonesia
Indonesia's central bank moved quickly to contain inflation after the government
raised fuel prices more than 30 percent and hiked its benchmark interest rate by 25 basis
points to 7.75 percent this 2016. President Joko Widodo raised subsidized gasoline and
diesel prices by more than 30 percent to help fund his reform agenda and tackle the
country's budget and current account deficits. The increase of interest rates is to anchor
inflation expectations and to ensure that inflationary pressures remain under control. In
Indonesia, there is a dynamic relationship among oil price shocks and exchange rate. In
the short run, oil prices shocks had a significant impact on exchange rates changes.
However, in the long run, the impulse response of the exchange rate variable to a crude
oil price shock was statistically insignificant. More so, in the case of oil-exporting country
such as Indonesia, the rising oil prices may experience exchange rate appreciation while
58
the decrease of oil price leads to currency appreciation of oil importing countries. As
Indonesian society became heavily dependent to government subsidies, they also became
addicted to cheap fuel. One characteristic of Indonesia is that a large quantity of
its population is clustered just above the poverty line, meaning that a relatively minor
inflationary shock can push them below that line. For instance, when the Susilo Bambang
Yudhoyono administration (2004-2014) decided to reduce massive fuel subsidies in late
2005 by raising subsidized fuel prices by more than double due to the rising international
oil price, it soon led to double-digit inflation rates of between 14 and 19 percent until
October 2006 (Amor, 2016).
Malaysia
Malaysia’s inflation rate is based on the consumer price index and is likely to
remain high in, as the fuel hike would be followed by an increase in the electricity tariff.
The jump in the consumer price index is caused by the adjustments made by households
and businesses (reduction in quantity demanded of goods and services and the drop in
economic output) that were previously insulated from the surging international market oil
prices through government fuel subsidies and various other price controls like those
previously seen in the local cement and steel industries. On Malaysia’s interest rates,
despite inflationary pressures building up due to the fluctuations in oil prices, Malaysian
central bank has recently decided to leave interest rates unchanged at a constant 3%. As
for their exchange rates, the Malaysian ringgit has appreciated last year (2015) due to the
59
removal of some of the capital controls that were put in place in the 1997 Asian financial
crisis, and the weakening of the US dollar due to the subprime mortgage and financial
crisis. As seen from the previous findings the impact of the increase in oil prices on GDP
and inflation, it can be seen that Malaysia faces an economic slowdown and high inflation
that would put pressures on the ringgit to depreciate (James, 2015).
Mongolia
As an exporting country Mongolia’s currency is affected by fluctuations in oil
prices. Fluctuations in oil prices would lower or increase the Gross Domestic Product and
as a result, would affect inflation rates. Thus, as a result of fluctuations in inflation rates,
it would affect the interest rates of Mongolia. When inflation rates are high, the Bank of
Mongolia would increase interest rates in order to increase money supply, which would
lower down inflation rates (Tusvhin, 2015).
Vietnam
Vietnam being a crude oil exporter means that the lowering of crude oil prices
would decrease their revenue. As a result the budget for spending would lower down
which causes interest rates to increase. Improvements on the number of barrels per day
produced would benefit Vietnam, as an effect it would cut down inflation rates. Policies
are made by the Vietnamese government in order to devaluate the Vietnamese Dong and
60
the weakening of Dong would make a competitive advantage over the different countries
exporting crude oil.
61
Chapter 6 – Conclusion and Recommendations
Recommendations
6.1.1 Future Researchers
Add More Countries
The researchers of the study recommend future researchers to add more countries to
know the impact of crude oil prices to the inflation rates, exchange rates, and interest rates
in emerging oil exporting countries and oil importing countries. The countries that were
used in this study were only limited to ASEAN countries with the exception of Mongolia.
Adding other continents will widen the scope of the study itself in order to bring more
significant and relevant results. This will also strengthen the reliability of information
gathered after the tests have been conducted.
Add More Benchmark
The researchers of the study recommend future studies to add more benchmarks.
The Dubai/Oman, Brent Blend, and WTI benchmark are the only benchmarks used for the
study, given that the different benchmarks for countries like Malaysia, Philippines, and
Singapore could not be obtained by the researchers due to the costs of the payment of the
data in order to get access to it. Adding more benchmarks will give a clearer difference
with respect to the countries using Platts and Tapis.
62
Add More Timeframe
The researchers of the study recommend future studies to add at least 5 to 10 years
to the existing timeframe to yield better regression results. Adding more years to the study
would lead to better and more accurate results. Past data from the years of the early
recession to the great recession from the years 1990-2000 would make a better historical
understanding of the overall movement of past recessions.
Add More Theories/Models
The researchers of the study recommend conducting more tests and looking into
more theories related to Granger Causality and Vector Error Correction Model. One
example is the method created by Hiro Toda and Taku Yamamoto where Augmented
Dickey-Fuller Unit Root Test and Johansen Cointegration Test are not conducted. It
showed a simple way to solve problems in hypothesis testing that can be encountered
when VAR processes may have some unit roots (Toda & Yamamoto, 1994).
6.1.2 Investors
Top Down Investors
The researchers of the study recommend future studies and stock market investors
to make use of the study in relation with top-down investing wherein it involves looking
at the overall condition of the economy using macroeconomic variables such as inflation,
interest, and exchange rates. By analyzing these macroeconomic variables, future
63
investors can foresee which industries or sectors are likely to benefit from the possible
movements of the above-mentioned variables.
Forex Investors
The researchers of the study recommend future studies and forex investors to make
use of the study that involves foreign exchange rates with relations to oil.
6.1.3 Businesses
Public Transportation
The researchers of the study recommend that those who are concerned with the
transportation system of their respective countries to/should make use of this material by
creating a more reliable and dependable source of information as to when is the best time
to generate further developments to yield a more affordable, more effective and efficient
transportation system.
Oil Companies
Upon encountering the researcher’s study, oil companies in Cambodia, Laos,
Philippines, Singapore, Thailand, Indonesia, Mongolia, Malaysia, and Vietnam will have
a broader knowledge of when, why, and how crude oil price will affect them in terms of
their capital cost, profit, crude price, and refinery margin.
64
Manufacturing
The researchers of the study recommend manufacturers to make use of the study. In
relation to oil prices and its effects on the manufacturing cost of manufacturers. Oil, being
as the mother of all commodities, is the most important component in producing energy in
refining raw materials into finished products.
6.1.4 Government
The researchers of the study recommend that countries such as Brunei, Cambodia,
Laos, Malaysia, Mongolia, Thailand and Vietnam use the Dubai/Oman Crude Oil Price
Benchmark since it is the closest crude oil price benchmark in their country.
65
Conclusion
In conclusion, the researchers conducted a Granger Causality Test to know whether
fluctuations of oil prices affect inflation rates, interest rates, and exchange rates of
emerging oil exporting countries and oil importing countries. The results derived from the
test showed that the movements of crude oil prices affect Cambodia, Laos, Indonesia,
Malaysia, Mongolia, Philippines, Singapore, Thailand, and Vietnam. The researchers of
the study conclude that inflation rates of Cambodia, Laos, Philippines, Thailand,
Indonesia, Malaysia, and Vietnam are affected by the fluctuations of crude oil prices.
Exchange rates of Cambodia, Philippines, Singapore, Indonesia, and Mongolia are
affected by the fluctuations of crude oil prices. Only the interest rates of Cambodia and
Vietnam are affected by the fluctuations of crude oil prices. It is worth noting that the
most affected country is Cambodia and the only country not affected by the fluctuations
of crude oil prices is Brunei. Additionally, two interviews were conducted to validate the
results and according to them, fluctuations in crude oil prices do in fact affect inflation
rates, interest rates, and exchange rates since a large part of the economy depends on oil.
66
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Appendices
Appendix A
71
Importing Countries
Cambodia
Inflation Rates
Figure 1.1 Lagged Values Criterion Selection for the Inflation Rates of Cambodia
When running regression on time-series data, it is often important to identify the
lagged values of the dependent variable and independent variable. In Figure 1.1, the
researchers observed that HQIC and SBIC criteria had their lowest values under the
lagged value of 6 while LR, FPE and AIC criteria had their lowest values under the
lagged value of 7. In this scenario, the researchers followed the rule of the majority. So,
lagged value is p=7.
72
Table 1.1 Augmented Dickey-Fuller Test for Unit Root of the Inflation Rates of
Cambodia
Inflation Rates
Test 5%
Country
Statistic Critical
Value
Cambodia -1.580 -1.9500
In Table 1.1, the researchers tested whether the given data (Inflation Rates) of
Cambodia is stationary or not stationary. Given that the absolute value of the chosen test
statistic is 1.580, which is less than the absolute value of the critical value, which is 1.950.
This follows that the 𝐻𝑜 (𝐻𝑜 : Inflation Rates of Cambodia are not stationary) cannot be
rejected. Hence, it is safe to say that Inflation Rates are non-stationary.
Table 1.2 Johansen Cointegration Test for the Inflation Rates of Cambodia and
Crude Oil Prices
Country Maximum Inflation Rates
Rank Trace 5%
Statistic Critical
Value
0 73.3139 15.41
Cambodia
1 8.4163 3.76
73
In Table 1.2, the researchers tested the data (Inflation Rates and Crude Oil Prices)
using Johansen Cointegration Test if the paired data behavior displays cointegration. The
researchers rejected 𝐻0 (𝐻0 : Crude oil prices and Inflation rates of Cambodia do not
display cointegration) when maximum rank (r = 0) since the value of the trace statistic =
73.3129 is more than the critical value = 15.41. Hence, it can be said that the variables
displayed cointegration (r =1).
Figure 1.2. VECM Table for the Inflation Rates of Cambodia and Crude Oil Prices
74
Since, the researchers have found out that the variables are cointegrated, and then
the Vector Error Correction Model (VECM) was ran. In Figure 1.2, note that the value of
the error correction term (Coef = -2.592145) and since its p-value = 0.000, it can be said
that it’s significant. Thus, there is a long run causality running from Crude Oil to Inflation
Rates. Note that with inflation rates, it had a lagged value of p=7, then in Figure 1.2, all of
the lagged values (LD, L2D, L3D, L4D, L5D, L6D) are significant since the p-values are
0.000. Meaning, the lagged values (LD, L2D, L3D, L4D, L5D, L6D) can jointly influence
the dependent variable (Inflation Rates).
Table 1.3 Granger Causality Test for the Inflation Rates of Cambodia and Crude
Oil Prices
Inflation Rates
5%
Country
P > |z| Critical
Value
Cambodia 0.000 0.0500
75
In Table 1.3, 𝐻0 (𝐻0 : Crude Oil Prices do not "Granger Cause" the Inflation Rates
of Cambodia) was tested. Using Granger Causality Test, note that the p-value = 0.003
which is less than the critical value = 0.05. This follows that 𝐻0 was rejected. Hence, it
can be said that Crude Oil Prices do “Granger Cause” the Inflation Rates of Cambodia.
Exchange Rate
Figure 1.3 Lagged Values Criterion Selection for the Exchange Rates of Cambodia
In Figure 1.3, the researchers observed that based from the HQIC and SBIC
criteria, a lagged value of 6 was chosen while the LR, FPE and AIC criteria has a lagged
value of 8. In this scenario, the researchers followed the rule of the majority. So, the
76
Table 1.4 Augmented Dickey-Fuller Test for Unit Root of the Exchange Rates of
Cambodia
Exchange Rates
Test 5%
Country
Statistic Critical
Value
Cambodia 0.45 -1.9500
In Table 1.4, the researchers tested whether the given data (Exchange Rates) of
Cambodia is stationary or not stationary. Given that the absolute value of the test statistic
is 0.45, which is less than the absolute value of the critical value, which is 1.950. This
follows that 𝐻0 (𝐻0 : Exchange Rates of Cambodia are not stationary) cannot be rejected.
Hence, it is safe to say that Exchange Rates are non-stationary.
Table 1.5 Johansen Cointegration Test for the Exchange Rates Cambodia and
Crude Oil Prices
Country Maximum Exchange Rates
Rank Trace 5%
Statistic Critical
Value
0 38.0228 15.41
Cambodia
1 11.1769 3.76
77
In Table 1.5, the researchers tested the data (Exchange Rates and Crude Oil Prices)
using Johansen Cointegration Test if the paired data behavior displays cointegration.
The researchers rejected 𝐻0 (𝐻0 : Crude Oil Prices and Exchange Rates of Cambodia do
not display Cointegration) when maximum rank (r = 0) since the value of the trace
statistic = 38.0228 is more than the critical value = 15.41. Hence, it can be said that the
variables displayed cointegration (r =1).
Figure 1.4 VECM Table for the Exchange Rates of Cambodia and Crude Oil Prices
78
the error correction term (Coef = -0.4177653) and its p-value = 0.000, it can be said that
it’s significant. Thus, there is a long run causality running from Crude Oil Prices to
Exchange Rates. Note that in exchange rates, it had a lagged value of p=8, then in Figure
1.4, it can be said that the lagged values (LD, L3D, L4D, L5D, L6D) are significant since
the p-values are 0.001. Meaning, they can jointly influence the dependent variable
(Exchange Rates). The lagged values L2D and L7D are not significant since they have p-
values of 0.075 and 0.246 that are greater than the critical value = 0.05. Thus, the lagged
values (L2D and L7D) cannot influence the dependent variable (Exchange Rates).
79
Table 1.6 Granger Causality Test for the Exchange Rates of Cambodia and Crude
Oil Prices
Interest Rates
5%
Country
P > |z| Critical
Value
Cambodia 0.000 0.0500
In Table 1.6, 𝐻𝑜 (𝐻𝑜 : Crude Oil Prices do not "Granger Cause" the Exchange Rates
which is less than the critical value = 0.05. This follows that 𝐻𝑜 was rejected. Hence,
Crude Oil Prices do “Granger Cause” the Exchange Rates of Cambodia.
80
Interest Rates
Figure 1.5 Lagged Values Criterion Selection for the Interest Rates of Cambodia
In Figure 1.5, the researchers observed a lagged value of 6 was chosen based from
the criteria LR, FPE, AIC, HQIC and SBIC. So in this scenario, the researchers followed
the rule of the majority. So, the lagged value is p=6.
Table 1.7 Augmented Dickey-Fuller Test for Unit Root of the Interest Rates of
Cambodia
Interest Rates
Test 5%
Country
Statistic Critical
Value
Cambodia -0.506 -1.9500
81
In Table 1.7, the researchers tested whether the given data (Interest Rates) of
Cambodia is stationary or non-stationary. Given that the absolute value of the test statistic
follows that 𝐻𝑜 (𝐻𝑜 : Interest Rates of Cambodia are not stationary) cannot be rejected.
Hence, it is safe to say that Interest Rates are non-stationary.
Table 1.8 Johansen Cointegration Test for the Interest Rate of Cambodia and Crude
Oil Price
Country Maximum Interest Rates
Rank Trace 5%
Statistic Critical
Value
0 125.9669 15.41
Cambodia
1 10.4517 3.76
In Table 1.8, the researchers tested the data (Interest Rates and Crude Oil Prices)
researchers rejected 𝐻𝑜 (𝐻𝑜 : Crude Oil Prices and Interest Rates of Cambodia do not
125.9669 is more than the critical value = 15.41. Hence, it is safe to say that the variables
82
Figure 1.6 VECM Table for the Interest Rates of Cambodia and Crude Oil Prices
Since the researchers have found out that the variables are cointegrated, then the
Vector Error Correction Model (VECM) was ran. In Figure 1.6, note that the value of the
error correction term (Coef = -1.509891) and since its p-value = 0.000, it can be said that
it's significant. Thus, there is a long run causality running from Crude Oil Prices to
83
Interest Rates. Note that in interest rates, it had a lagged value of p=6, then in Figure 1.6,
it can be said that the lagged values (LD, L2D, L3D, L4D) are significant since the p-
values are 0.000, 0.000, 0.000, 0.001 respectively. Meaning, the lagged values (LD, L2D,
L3D, L4D) can jointly influence the dependent variable (Interest Rates). While the lagged
value (L5D) is not significant since its p-value = 0.210 is greater than critical value =
0.05. Thus, it cannot influence the dependent variable (Interest Rates).
Table 1.9 Granger Causality Test for the Interest of Cambodia and Crude Oil Prices
Interest Rates
5%
Country
P > |z| Critical
Value
Cambodia 0.000 0.0500
In Table 1.9, 𝐻𝑜 (𝐻𝑜 : Crude Oil Prices do not "Granger Cause" the Interest Rates of
Cambodia) was tested. Using Granger Causality Test, note that the p-value = 0.000 which
less than the critical value = 0.05. This follows that 𝐻𝑜 was rejected. Hence, Crude Oil
Prices do “Granger Cause” the Interest Rates of Cambodia.
Given the results of the analysis above, Crude oil Prices plays an important rule on
the Inflation Rates, Exchange Rates and Interest Rates of Cambodia. Specifically, Crude
84
Oil Prices do “Granger Cause” the Inflation Rates, Exchange Rates and Interest Rates of
Cambodia. Since Cambodia is a crude oil importing country, the fluctuations of crude oil
prices have an impact on the inflation rate, exchange rate and interest rate of this country.
85
Appendix B
Laos
Inflation Rates
Figure 2.1 Lagged Values Criterion Selection for the Inflation Rates of Laos
In Figure 2.1, the researchers observed that SBIC criteria had its lowest value of
5.0055 under the lagged value of 1 while LR, FPE, AIC and HQIC criteria have their
lowest values under the lagged value of 7. In this scenario, the researchers followed the
rule of the majority. So, the lagged value is p=7.
86
Table 2.1 Augmented Dickey-Fuller Test for Unit Root of The Inflation Rate of Laos
Inflation Rates
Test 5%
Country
Statistic Critical
Value
Laos -0.494 -1.9500
In Table 2.1, the researchers tested whether the given data (Inflation Rates) of Laos
is stationary or not stationary. Given that the absolute value of the test statistic is 0.494,
which is less than the absolute value of our critical value, which is 1.950. This follows
that 𝐻0 (𝐻0 : Inflation Rates of Laos are not stationary) cannot be rejected. Hence, it is
safe to say that Interest Rates is non-stationary.
Table 2.2 Johansen Cointegration Test for the Inflation Rates of Laos and Crude Oil
Price
Country Maximum Rank Inflation Rates
Trace 5%
Statistic Critical
Value
0 60.2745 15.41
Laos
1 12.6104 3.76
87
researchers rejected 𝐻0 (𝐻0 : Crude Oil Prices and the Inflation Rates of Laos do not
display cointegration) when maximum rank (r = 0) since the value of our trace statistic =
88
Figure 2.2 VECM Table for the Inflation Rates of Laos and Crude Oil Prices
our error correction term (Coef = -0.7963968) and since its p-value = 0.000, it can be said
that it’s significant. Thus, there is a long run causality running from Crude Oil Prices to
Inflation Rates. Note with inflation rates, it had a lagged value of p=7, then Figure 2.2, all
89
of the lagged values (LD, L2D, L3D, L4D, L5D and L6D) are significant since their p-
values are less than the critical value = 0.05. Meaning, the lagged values can jointly
influence the dependent variable (Inflation Rates).
Table 2.3 Granger Causality Test for the Inflation Rates of Laos and Crude Oil
Prices
Inflation Rates
5%
Country
P > |z| Critical
Value
Laos 0.000 0.0500
In Table 2.3, the researchers tested 𝐻0 (𝐻0 : Crude Oil Prices does not granger the
Inflation Rates of Laos). Using Granger Causality Test, note that the p-value = 0.000
which is less than our critical value = 0.05. This follows that Ho was rejected. Hence, it
can be said that Crude Oil Prices do “Granger Cause” the Inflation Rates of Laos.
90
Exchange Rates
Figure 2.3 Lagged Values Criterion Selection for the Exchange Rates of Laos
In the Table 2.3, the researchers observed that SBIC criteria had its lowest value of
24.5034 when in lagged value of 7 while LR, FPE, AIC and HQIC criteria have the
rule of the majority. So, the lagged value is (p=8).
91
Laos
Exchange Rates
5%
Country
Test Critical
Statistic Value
Laos -0.259 -1.9500
Laos is stationary or not stationary. Given that the absolute value of our test statistic is
0.259, which is less than the absolute value of our critical value, which is 1.950. This
follows that 𝐻0 (𝐻0 : Exchange Rates of Laos are not stationary) cannot be rejected. Hence,
it is safe to say that Exchange Rates are non-stationary.
Table 2.5 Johansen Cointegration Test of the Exchange Rates of Laos and Crude Oil
Price
Rank Trace 5%
Statistic Critical
Value
0 69.7056 15.41
Laos
1 8.3509 3.76
92
researchers rejected 𝐻0 (𝐻0 : Crude Oil Prices and Exchange Rates of Laos do not display
cointegration) when maximum rank (r = 0) since the value of the trace statistic = 69.7056
is more than the critical value = 15.41. Hence, it can be said that the variables displayed
cointegration (r =1).
Figure 2.4 VECM Table for the Exchange Rates of Laos and Crude Oil Price
93
2.4, the lagged values (LD, L2D and L7D) are significant since their p-values are 0.000,
0.000 and 0.014 are less than against the critical value = 0.05. Meaning, they can jointly
influence the dependent variable (Exchange Rates). Lagged values (L3D, L4D, L5D and
L6D) are not significant since they have p-values that are greater than the set critical
value. Thus, the lagged values (L3D, L4D, L5D and L6D) cannot influence the dependent
variable (Exchange Rates).
94
Table 2.6 Granger Causality Test for the Exchange Rates of Laos and Crude Oil
Prices
Exchange Rates
Country 5%
P > |z| Critical
Value
Laos 0.956 0.0500
In Table 2.6, the 𝐻0 (𝐻0 : Crude Oil Prices do not "Granger Cause" the Exchange
Rates of Laos) was tested. Using Granger Causality Test, note that the p-value = 0.956
which is greater than our critical value = 0.05. This follows that 𝐻0 was not rejected.
Hence, it can be said that Crude Oil Prices does not “Granger Cause” the Exchange Rates
of Laos.
95
Interest Rates
Figure 2.5 Lagged Values Criterion Selection for the Interest Rates of Laos
In Figure 2.5, the researchers observed that the SBIC criteria had its lowest value of
15.0003 when in lagged value of 7 while LR, FPE, AIC and HQIC criteria have their
lowest under the lagged value of 8. In this scenario, the researchers followed the rule of
the majority. So, the lagged value is p=8
96
Table 2.7 Augmented Dickey-Fuller Test for Unit Root of the Interest Rates of Laos
Interest Rates
5%
Country
Test Critical
Statistic Value
Laos -0.734 1.9500
In Table 2.7, the researchers tested whether the given data (Interest Rates) of Laos
is stationary or not stationary. Given that the absolute value of our test statistic is 0.734,
which is less than the absolute value of our critical value, which is 1.950. This follows
that 𝐻0 (𝐻0 :Interest Rates of Laos are not stationary) cannot be rejected. Hence, it is safe
to say that Interest Rates is non-stationary.
Table 2.8 Johansen Cointegration Test for the Interest Rate of Laos and Crude Oil
Price
Rank Trace 5%
Statistic Critical
Value
0 72.9533 15.41
Laos
1 7.5016 3.76
97
researchers rejected 𝐻0 (𝐻0 : Crude Oil Prices and Interest Rates of Laos do not display
cointegration) when maximum rank (r = 0) since the value of the trace statistic = 72.9533
Figure 2.6 VECM Table for the Interest Rates of Laos and Crude Oil Price
98
Vector Error Correction Model (VECM) was ran. In Figure 2.6, note that the value of our
error correction term (Coef = -2.536162) and since its p-value = 0.000, it can be said that
it’s significant. Thus, there is a long run causality running from Crude Oil Prices to
the lagged values (LD, L2D and L3D) are significant since their p-values are lower than
the critical value of 0.05. This follows that the lagged values (L2D and L3D) can jointly
influence the dependent variable (Interest Rates). Meanwhile, lagged values (L4D, L5D,
L6D and L7D) are not significant since they have p-values of 0.076, 0.897, 0.531 and
0.090 that are greater than the critical value = 0.05. Thus, the lagged values (L4D, L5D,
L6D and L7D) cannot influence the dependent variable (Interest Rates).
99
Table 2.9 Granger Causality Test for the Interest Rates of Laos and Crude Oil
Prices
Interest Rates
5%
Country
P > |z| Critical
Value
Laos 0.466 0.0500
In Table 2.9, 𝐻0 (𝐻0 : Crude Oil Prices do not "Granger Cause" the Interest Rates of
Laos) was tested. Using Granger Causality Test, note that the p-value = 0.466 which is
greater than our critical value = 0.05. This follows that Ho was not rejected. Hence, it can
be said that Crude Oil Prices does not “Granger Cause” the Interest Rates of Laos.
Given the results of the analysis above, Crude Oil Prices plays an important rule on
the Inflation Rates of Laos. Specifically, Crude Oil Prices does “Granger Cause” on the
Inflation Rates of Laos. Since Laos is a crude oil importing country, the fluctuations of
crude oil prices creates an impact on the inflation rates of this country. On the contrary, it
is worth noting that Crude Oil Prices does not granger cause on the Exchange Rates and
Interest Rates of Laos. That means, the fluctuation of the Crude Oil Prices does not create
an impact on the exchange and interest rates of Laos.
100
Appendix C
Philippines
Inflation Rates
Figure 3.1 Lagged Values Criterion Selection for the Inflation Rates of Philippines
In Figure 3.1, the researchers observed that SBIC criteria had the lowest value of
4.75642 under the lagged value of 6 and HQIC criteria has the lowest value of 4.36192
under the lagged value of 7. While LR, FPE and AIC criteria had their lowest value under
the lagged value of 8. In this scenario, the researchers followed the rule of the majority.
So, the lagged value is p=8.
101
Philippines
Inflation Rates
Test 5%
Country
Statistic Critical
Value
Philippines -1.580 -1.9500
In Table 3.1, the researchers tested whether the given data (Inflation Rates) of the
Philippines is stationary or not stationary. Given that the absolute value of the test statistic
follows that the researchers cannot reject 𝐻0 (𝐻0 : Inflation Rates of Philippines are not
stationary). Hence, it is safe to say that Inflation Rates are non-stationary.
Table 3.2 Johansen Cointegration Test for the Inflation Rates of Philippines and
Crude Oil Price
Rank Trace 5%
Statistic Critical
Value
0 39.4801 15.41
Philippines
1 8.916 3.76
102
researchers rejected 𝐻0 (𝐻0 : Crude Oil Prices and Inflation Rates of Philippines do not
Figure 3.2 VECM Table for the Inflation Rates of Philippines and Crude Oil Prices
103
that it's significant. Thus, there is a long run causality running from Crude Oil Prices to
Inflation Rates. Note with inflation rates, it had a lagged value of p=8, then in Figure 3.2,
all of the lagged values (LD, L2D, L3D, L4D, L5D, L6D and L7D) are significant since
their p-values are lower than the set critical value of 0.05. Meaning, the lagged values
(LD, L2D, L3D, L4D, L5D, L6D and L7D) can jointly influence the dependent variable
(Inflation Rates).
104
Table 3.3 Granger Causality Test for the Inflation Rates of Philippines and Crude
Oil Prices
Inflation Rates
5%
Country
P > |z| Critical
Value
Philippines 0.004 0.0500
of the Philippines) was tested. Using Granger Causality Test, note that the p-value =
0.004 which is less than the critical value = 0.05. This follows that Ho was rejected.
Hence, it can be said that Crude Oil Prices do “Granger Cause” the Inflation Rates of the
Philippines
105
Exchange Rates
Figure 3.3 Lagged Values Criterion Selection for the Exchange Rates of the
Philippines
In Figure 3.3, the researchers observed that LR, FPE, AIC, HQIC and SBIC criteria
had their lowest values under lagged values of 8. This means that the lagged value is p=8.
Philippines
Exchange Rates
5%
Country
Test Critical
Statistic Value
Philippines 0.027 -1.9500
106
In Table 3.4, the researchers tested whether the given data (Exchange Rates) of the
follows that 𝐻0 (𝐻0 : Exchange Rates of Philippines are not stationary) cannot be rejected.
Table 3.5 Johansen Cointegration Test of the Exchange Rates of Philippines and
Crude Oil Prices
Rank Trace 5%
Statistic Critical
Value
0 126.9791 15.41
Philippines
1 8.2975 3.76
researchers rejected 𝐻0 (𝐻0 : Crude Oil Prices and Exchange Rates do not display
cointegration) when maximum rank (r = 0) since the value of the trace statistic =
107
Figure 3.4 VECM Table for the Exchange Rates of Philippines and Crude Oil Price
108
3.4, the lagged values (LD, L2D, L3D, L4D, L5D and L7D) are significant since their p-
values are lower than the critical value of 0.05. This follows that the lagged values (LD,
L2D, L3D, L4D, L5D and L7D) can jointly influence the dependent variable (Exchange
Rates). Meanwhile, lagged value (L6D) is not significant since it had a p-value of 0.146
that is greater than the critical value = 0.05. Thus, the lagged value (L6D) cannot
influence the dependent variable (Exchange Rates).
Table 3.6 Granger Causality Test for the Exchange Rates of Philippines and Crude
Oil Price
Exchange Rates
Country 5%
P > |z| Critical
Value
109
In Table 3.6, 𝐻0 (𝐻0 : Crude Oil Prices do not granger the Exchange Rates of the
Philippines) was tested. Using Granger Causality Test, note that the p-value = 0.004
can be said that Crude Oil Prices do “Granger Cause” the Exchange Rates of the
Philippines.
Interest Rates
Figure 3.5 Lagged Values Criterion Selection for the Interest Rates of Philippines
12.1315 under the lagged value of 7 while LR, FPE, AIC and HQIC criteria had their
rule of the majority. So, the lagged value is p=8.
110
Philippines
Interest Rates
5%
Country
Test Critical
Statistic Value
Philippines -0.38 1.9500
In Table 3.7, the researchers tested whether the given data (Interest Rates) of the
follows that 𝐻0 (𝐻0 : Interest Rates of Philippines are not stationary) cannot be rejected.
111
Table 3.8 Johansen Cointegration Test for the Interest Rate of Philippines and
Crude Oil Prices
Rank Trace 5%
Statistic Critical
Value
0 91.9602 15.41
Philippines
1 7.5521 3.76
researchers rejected 𝐻0 (𝐻0 : Crude Oil Prices and Interest Rates of Philippines do not
112
Figure 3.6 VECM Table for the Interest Rates of Philippines and Crude Oil Price
113
the lagged values (LD and L2D) are significant since their p-values are 0.000 and 0.002
respectively which is less than the critical value = 0.05. This means that the lagged values
(LD and L2D) can jointly influence the dependent variable (Interest Rates). Meanwhile,
lagged values (L3D, L4D, L5D, L6D and L7D) are not significant since their p-values are
greater than the critical value = 0.05. Thus, the lagged values (L3D, L4D, L5D, L6D and
L7D) cannot influence the dependent variable (Interest Rates).
Table 3.9 Granger Causality Test for the Interest Rates of Philippines and Crude Oil
Price
Interest Rates
5%
Country
P > |z| Critical
Value
In Table 3.9, 𝐻0 (𝐻0 : Crude Oil Prices do not "Granger Cause" the Exchange Rates
114
which is greater than the critical value = 0.05. This follows that 𝐻0 was not rejected.
Hence, it can be said that Crude Oil Prices does not “Granger Cause” the Interest Rates of
the Philippines.
the Inflation Rates and Exchange Rates of the Philippines. Specifically, Crude Oil Prices
does granger on the Inflation Rates and Exchange Rates of the Philippines. Since the
Philippines is a crude oil importing country, the fluctuations of crude oil prices creates an
impact on the inflation and exchange rates of this country. On the contrary, it is worth
noting that Crude Oil Prices does not granger on the Interest Rates of the Philippines.
That means, the fluctuation of the Crude Oil Prices does not create an impact on the
interest rates of the Philippines.
115
Appendix D
Singapore
Inflation Rates
Figure 4.1 Lagged Values Criterion Selection for the Inflation Rates of Singapore
In Figure 4.1, the researchers observed that all criteria (LR, FPE, AIC, HQIC and
SBIC) had the lowest values when in lagged 8. In this scenario, the lagged value is p=8.
116
Table 4.1 Augmented Dickey Fuller Test for Unit Root of the Inflation Rate of
Singapore
Inflation Rates
Test 5%
Country
Statistic Critical
Value
Singapore -1.026 -1.9500
Singapore is stationary or not stationary. Given that the absolute value of the test statistic
follows that cannot reject 𝐻0 (𝐻0 : Inflation Rates of Singapore are not stationary) cannot
be rejected. Hence, it is safe to say that Inflation Rates are non-stationary.
117
Table 4.2 Johansen Cointegration Test for the Inflation Rates of Singapore and
Crude Oil Prices
Rank Trace 5%
Statistic Critic
al
Value
0 48.7342 15.41
Singapore
1 8.1525 3.76
researchers rejected 𝐻0 (𝐻0 : Crude Oil Prices and Inflation Rates of Singapore do not
118
Figure 4.2 VECM Table for the Inflation Rates of Singapore and Crude Oil Price
119
our error correction term (Coef = -4.0855773) and since its p-value = 0.000, it can be said
Inflation Rates. Note that in inflation rates, it had a lagged value of p=8, then in Figure
4.2, only lagged value (L3D) is significant since the p-value is 0.001. Meaning, lagged
value (L3D) can influence the dependent variable (Exchange Rates). On the other hand,
lagged values (LD, L2D, L4D, L5D, L6D and L7D) are not significant since they have p-
values that are greater than the critical value = 0.05. Thus, lagged values (LD, L2D, L4D,
L5D, L6D and L7D) cannot influence the dependent variable (Inflation Rates).
120
Table 4.3 Granger Causality Test for the Inflation Rates of Singapore and Crude Oil
Prices
Inflation Rates
5%
Country
P > |z| Critical
Value
Singapore 0.178 0.0500
In Table 4.3, the researchers tested 𝐻0 (𝐻0 : Crude Oil Prices do not "Granger
Cause" the Inflation Rates of Singapore). Using Granger Causality Test, note that the p-
value = 0.178 which is greater than the critical value = 0.05. This follows that 𝐻0 cannot
be rejected. Hence, it can be said that Crude Oil Prices does not “Granger Cause” the
Inflation Rates of Singapore.
121
Exchange Rates
Figure 4.3 Lagged Values Criterion Selection for the Exchange Rates of Singapore
In Figure 4.3, the researchers observed that LR, HQIC and SBIC criteria had a
lagged value of 7 while FPE and AIC criteria had a lagged value of 8. In this scenario, the
researchers followed the rule of the majority. So, lagged value is p=7.
Singapore
Exchange Rates
5%
Country
Test Critical
Statistic Value
Singapore -0.057 -1.9500
122
follows that 𝐻0 (𝐻0 : Exchange Rates of Singapore are not stationary) cannot be rejected.
Table 4.5 Johansen Cointegration Test of the Exchange Rates of Singapore and
Crude Oil Prices
Rank Trace 5%
Statistic Critical
Value
0 71.1562 15.41
Singapore
1 16.6147 3.76
researchers rejected 𝐻0 (𝐻0 : Crude Oil Prices and Exchange Rates of Singapore do not
123
Figure 4.4 VECM Table for the Exchange Rates of Singapore and Crude Oil Prices
124
4.4, the lagged values (L3D, L4D, L5D and L6D) are significant since the p-values are
0.036, 0.000, 0.000 and 0.008 respectively. Meaning, lagged values (L3D, L4D, L5D and
L6D) can jointly influence the dependent variable (Exchange Rates). Meanwhile, lagged
values (LD and L2D) are not significant since they have p-values of 0.333, 0.886 that are
greater than the critical value = 0.05. Thus, lagged values (LD and L2D) cannot influence
the dependent variable (Exchange Rates).
Table 4.6 Granger Causality Test for the Exchange Rates of Singapore and Crude
Oil Prices
Exchange Rates
5%
Country
P > |z| Critical
Value
Cause" the Exchange Rates of Singapore). Using Granger Causality Test, note that the p-
value = 0.045 which is less than our critical value = 0.05. This follows that 𝐻0 was
125
rejected. Hence, it can be said that Crude Oil Prices does “Granger Cause” the Exchange
Rates of Singapore.
Interest Rates
Figure 4.5 Lagged Values Criterion Selection for the Interest Rates of Singapore
11.0824 that belongs to lagged value of 7 while LR, FPE, AIC and HQIC criteria had its
the lowest values that are belonged to lagged value of 8. In this scenario, the researchers
followed the rule of the majority. So, the lagged value is p=8.
126
Singapore
Interest Rates
5%
Country
Test Critical
Statistic Value
Singapore -1.207 1.9500
follows that 𝐻0 (𝐻0 : Interest Rates of Singapore are not stationary) cannot be rejected.
127
Table 4.8 Johansen Cointegration Test for the Interest Rate of Singapore and Crude
Oil Prices
Rank Trace 5%
Statistic Critical
Value
0 64.249 15.41
Singapore
1 6.8685 3.76
researchers rejected 𝐻0 (𝐻0 : Crude Oil Prices and Interest Rates of Singapore do not
128
Figure 4.6 VECM Table for the Interest Rate of Singapore and Crude Oil Prices
129
all of the lagged values (LD, L3D, L4D, L5D, L6D and L7D) are not significant since
their p-values are greater than our critical value = 0.05. Meaning, lagged values (LD,
L3D, L4D, L5D, L6D and L7D) cannot influence the dependent variable (Interest Rates).
Table 4.9 Granger Causality Test for the Interest Rates of Singapore and Crude Oil
Prices
Interest Rates
5%
Country
P > |z| Critical
Value
Singapore) was tested. Using Granger Causality Test, note that the p-value = 0.177 which
is greater than the critical value = 0.05. This follows that 𝐻0 was not rejected. Hence, it
can be said that Crude Oil Prices does not “Granger Cause” the Interest Rates of
Singapore.
the Exchange Rates of Singapore. Specifically, Crude Oil Prices does “Granger Cause” on
the Exchange Rates of Singapore. Since Singapore is a crude oil importing country, the
130
fluctuation of crude oil prices creates an impact on the exchange rates of this country. On
the contrary, it is worth noting that Crude Oil Prices does not “Granger Cause” on the
Inflation Rates and Interest Rates of Singapore. That means, the fluctuation of the Crude
Oil Prices does not create an impact on the Inflation and Interest rates of Singapore.
131
Appendix E
Thailand
Inflation Rates
Figure 5.1 Lagged Values Criterion Selection for the Inflation Rates of Thailand
4.3206 under lagged value of 1 and LR criteria had its lowest value of 11.547 under the
lagged value of 8. While FPE, AIC and HQIC had their lowest values under the lagged
value of 6. In this scenario, the researchers followed the rule of the majority. So, the
132
Thailand
Inflation Rates
Test 5%
Country
Statistic Critical
Value
Thailand -0.878 -1.9500
Thailand is stationary or not stationary. Given that the absolute value of the test statistic is
0.878, which is less than the absolute value of the critical value, which is 1.950. This
follows that 𝐻0 (𝐻0 : Inflation Rates of Thailand are not stationary) cannot be rejected.
Hence, it is safe to say that Inflation Rates is non-stationary.
Table 5.2 Johansen Cointegration Test for the Inflation Rate of Thailand and Crude
Oil Prices
Rank Trace 5%
Statistic Critical
Value
0 81.6912 15.41
Thailand
1 25.2583 3.76
133
researchers rejected 𝐻0 (𝐻0 : Crude Oil Prices and Inflation Rates of Thailand do not
134
Figure 5.2 VECM Table for the Inflation Rates of Thailand and Crude Oil Prices
the error correction term (Coef = 0.5627785) and since its p-value = 0.000, it can be said
that it’s significant. Since the error correction term is significant the coefficient value is
135
not negative, then it can be said that there is no long run causality running from Crude Oil
Prices to Inflation Rates. Note with inflation rates, it had a lagged value of p=6, then in
Figure 5.2, only lagged value (LD) is significant since its p-value is 0.000. This means
that lagged value (LD) can influence the dependent variable (Inflation Rates). On the
other hand, lagged values (L2D, L3D, L4D and L5D) are not significant since they have
p-values that are greater than the critical value = 0.05. Thus, lagged values (L2D, L3D,
L4D and L5D) cannot influence the dependent variable (Inflation Rates).
Table 5.3 Granger Causality Test for the Inflation Rates of Thailand and Crude Oil
Prices
Inflation Rates
5%
Country
P > |z| Critical
Value
Thailand 0.000 0.0500
Cause" the Inflation Rates of Thailand). Using Granger Causality Test, note that the p-
value = 0.000 which less than our critical value = 0.05. This follows that 𝐻0 was rejected.
Hence, it can be said that Crude Oil Prices does “Granger Cause” the Inflation Rates of
Thailand.
136
Exchange Rates
Figure 5.3 Lagged Values Criterion Selection for the Exchange Rates of Thailand
In Figure 5.3, the researchers observed that all criterias (LR, FPE, AIC, HQIC and
SBIC) had their lowest values under the lagged value of 8. It follows that the lagged value
is p=8.
Thailand
Exchange Rates
5%
Country
Test Critical
Statistic Value
Thailand 0.08 -1.9500
137
follows that 𝐻0 (𝐻0 : Exchange Rates of Thailand are not stationary) cannot be rejected.
Hence, is it safe to say that Exchange Rates are non-stationary.
Table 5.5 Johansen Cointegration Test of the Exchange Rates of Thailand and
Crude Oil Prices
Rank Trace 5%
Statistic Critical
Value
0 73.2846 15.41
Thailand
1 6.5963 3.76
researchers rejected 𝐻0 (𝐻0 : Crude Oil Prices and Exchange Rates of Thailand are not
cointegrated) when maximum rank (r = 0) since the value of the trace statistic = 73.2846
138
Figure 5.4 VECM Table for the Exchange Rates of Thailand and Crude Oil Prices
139
5.4, only lagged values (LD and L7D) are significant since their p-values are 0.000 and
0.002 which are lower than the set critical value of 0.05. This means that lagged values
(LD and L7D) can jointly influence the dependent variable (Exchange Rates). Meanwhile,
lagged values (L2D, L3D, L4D, L5D and L6D) are not significant since they have p-
values that are greater than the critical value = 0.05. Thus, lagged values (L2D, L3D,
L4D, L5D and L6D) cannot influence the dependent variable (Exchange Rates).
Table 5.6 Granger Causality Test for the Exchange Rates of Thailand and Crude Oil
Price
Exchange Rates
Country 5%
P > |z| Critical
Value
140
In Table 5.6, 𝐻0 (𝐻0 : Crude Oil Prices do not "Granger Cause " the Exchange
Rates of Thailand) was tested. Using Granger Causality Test, note that the p-value =
0.610 which is greater than critical value = 0.05. This follows that 𝐻0 cannot be rejected.
of Thailand.
Interest Rates
Figure 5.5 Lagged Values Criterion Selection for the Interest Rates of Thailand
In Figure 5.5 the researchers observed that all criteria (LR, FPE, AIC, HQIC and
SBIC) had their lowest values under the lagged value of 7. It follows that the lagged value
is p=7.
141
Thailand.
Interest Rates
5%
Country
Test Critical
Statistic Value
Thailand -0.308 -1.9500
follows that 𝐻0 (𝐻0 : Interest Rates of Thailand are not stationary) cannot be rejected.
142
Table 5.8 Johansen Cointegration Test for the Interest Rate of Thailand and Crude
Oil Prices
Rank Trace 5%
Statistic Critical
Value
0 85.8369 15.41
Thailand
1 12.964 3.76
researchers rejected 𝐻0 (𝐻0 : Crude Oil Prices and Interest Rates of Thailand do not
143
Figure 5.6 VECM Table for the Interest Rates of Thailand and Crude Oil Prices
144
lagged values (LD, L2D, L3D and L4D) are significant since they had p-values that are
lower than the set critical value of 0.05. This means that lagged values (LD, L2D, L3D
and L4D) can jointly influence the dependent variable (Exchange Rates). On the other
hand, lagged values (L5D and L6D) are not significant since they had p-values of 0.0433
and 0.367 respectively that are greater than the critical value = 0.05. Thus, lagged values
(L5D and L6D) cannot influence the dependent variable (Interest Rates).
Table 5.9 Granger Causality Test for the Interest Rates of Thailand and Crude Oil
Prices
Interest Rates
5%
Country
P > |z| Critical
Value
Thailand 0.246 0.0500
Thailand) was tested. Using Granger Causality Test, note that the p-value = 0.246 which
is greater than the critical value = 0.05. This follows that 𝐻0 was not rejected. Hence, we
can say that Crude Oil Prices does not “Granger Cause” the Interest Rates of Thailand.
145
the Inflation Rates of Thailand. Specifically, Crude Oil Prices does “Granger Cause” on
the Inflation Rates of Thailand. Since Thailand is a crude oil importing country, the
fluctuations of crude oil prices creates an impact on the inflation rates of this country. On
the contrary, it is worth noting that Crude Oil Prices does not “Granger Cause” on the
Exchange Rates and Interest Rates of Thailand. That means, the fluctuations of the Crude
Oil Prices does not create an impact on the exchange and interest rates of Thailand.
146
Emerging Oil Exporting Countries
Appendix F
Brunei
Inflation Rates
Figure 6.1 Lagged Values Criterion Selection for the Inflation Rates of Brunei
In Figure 6.1, the researchers observed all criterias (LR, FPE, AIC, HQIC and
SBIC) had their lowest values under the lagged value of 8. This means that the lagged
value for this scenario is p=6.
147
Brunei
Inflation Rates
Test 5%
Country
Statistic Critical
Value
Brunei -1.080 -1.9500
Brunei is stationary or not stationary. Given that the absolute value of the test statistic is
follows that the researchers cannot reject 𝐻0 (𝐻0 : Inflation Rates of Brunei are not
148
Table 6.2 Johansen Cointegration Test for the Inflation Rates of Brunei and Crude
Oil Prices
Rank Trace 5%
Statistic Critical
Value
0 56.6902 15.41
Brunei
1 10.222 3.76
researchers rejected 𝐻0 (𝐻0 : Crude Oil Prices and Inflation Rates of Brunei do not
display cointegration (r =1).
149
Figure 6.2 VECM Table for the Inflation Rates of Brunei and Crude Oil Prices
150
Rates. Note with inflation rates, it had a lagged value of p=8, then in Figure 6.2, lagged
values (L3D, L4D and L6D) are significant since their p-values are less than the set
critical value 0.05. This means that lagged values (L3D, L4D and L6D) can jointly
influence the dependent variable (Inflation Rates). On the other hand, lagged values (LD,
L2D, L5D and L7D) are not significant since they had p-values that are greater than the
critical value = 0.05. Thus, lagged values (LD, L2D, L5D and L7D) cannot influence the
dependent variable (Inflation Rates).
Table 6.3 Granger Causality Test for the Inflation Rates of Brunei and Crude Oil
Prices
Inflation Rates
5%
Country
P > |z| Critical
Value
Brunei 0.457 0.0500
of Brunei) was tested. Using Granger Causality Test, note that the p-value = 0.457 which
can be said that Crude Oil Prices does not “Granger Cause” the Inflation Rates of Brunei.
151
Exchange Rates
Figure 6.3 Lagged Values Criterion Selection for the Exchange Rates of Brunei
In Figure 6.3, the researchers observed that LR, HQIC and SBIC criterias had their
lowest values under the lagged value 7. While FPE and AIC had their lowest values under
the lagged value 8. In this scenario, the researchers followed the rule of the majority. So,
the lagged value is p=7.
152
Brunei
Exchange Rates
5%
Country
Test Critical
Statistic Value
Brunei -0.057 -1.9500
Brunei is stationary or not stationary. Given that the absolute value of the test statistic is
follows that 𝐻0 (𝐻0 : Exchange Rates of Brunei are not stationary) cannot be rejected.
153
Table 6.5 Johansen Cointegration Test of the Exchange Rates of Brunei and Crude
Oil Prices
Rank Trace 5%
Statistic Critical
Value
0 71.1616 15.41
Brunei
1 16.6276 3.76
researchers rejected 𝐻0 (𝐻0 : Crude Oil Prices and Exchange Rates of Brunei do not
154
Figure 6.4 VECM Table for the Exchange Rates of Brunei and Crude Oil Prices
155
that it’s significant. Thus, there is a long run causality running from Crude Oil to
6.4, lagged values (L4D, L5D and L6D) are significant since their p-values are less than
the set critical value 0.05. This means that lagged values (L4D, L5D and L6D) can jointly
influence the dependent variable (Exchange Rates). On the other hand, lagged values
(LD, L2D and L3D) are not significant since they have p-values that are greater than the
critical value = 0.05. Thus, lagged values (LD, L2D and L3D) cannot influence the
dependent variable (Exchange Rates).
Table 6.6 Granger Causality Test for the Exchange Rates of Brunei and Crude Oil
Prices
Exchange Rates
5%
Country
P > |z| Critical
Value
Brunei 0.405 0.0500
of Brunei) was tested. Using Granger Causality Test, note that the p-value = 0.405 which
is greater than our critical value = 0.05. This follows that 𝐻0 cannot be rejected. Hence, it
can be said that Crude Oil Prices does not "Granger Cause" the Exchange Rates of
Brunei.
156
Interest Rates
Figure 6.5 Graph of the Interest Rates of Brunei
Based on the graph provided above, the value of the interest rates of Brunei from
2006 to 2015 does not change. It remained at 5.5% value over time. This means that, the
fluctuations of the crude oil prices definitely does not create an impact on the Interest
Rates of Brunei. Hence, it can be said that crude oil prices do not “Granger Cause” the
Interest Rates of Brunei.
157
Given the results of the analysis above, Crude Oil Prices does not play an important
rule on the Inflation Rates, Exchange Rates and Interest Rates of Brunei. Specifically,
Crude Oil Prices does not granger on the Inflation Rates, Exchange Rates and Interest
Rates of Brunei. It is worth noting that Crude Oil Prices never had an effect on the
Interest Rates of this country.
158
Appendix G
Indonesia
Inflation Rates
Figure 7.1 Lagged Values Criterion Selection for the Inflation Rates of Indonesia
In Figure 7.1, the researchers observed that HQIC and SBIC criteria had their
lowest values under the lagged value of 6 while LR, FPE and AIC had their lowest values
under the lagged value of 8. In this scenario, the researchers followed the rule of the
majority. So, the lagged value is p=8.
159
Indonesia
Inflation Rates
Test 5%
Country
Statistic Critical
Value
Indonesia -0.445 -1.9500
follows that the researchers cannot reject 𝐻0 (𝐻0 : Inflation Rates of Indonesia are not
160
Table 7.2 Johansen Cointegration Test for the Inflation Rates of Indonesia and
Crude Oil Prices
Rank Trace 5%
Statistic Critical
Value
0 60.5065 15.41
Indonesia
1 13.0395 3.76
researchers rejected 𝐻0 (𝐻0 : Crude Oil Prices and Inflation Rates of Indonesia do not
display cointegration (r =1).
161
Figure 7.2 VECM Table for the Inflation Rates of Indonesia and Crude Oil Prices
162
Rates. Note that in inflation rates, it had a lagged value of p=8, then in Figure 7.2, lagged
values (LD, L2D, L3D and L4D) are significant since their p-values are less than the set
critical value 0.05. This means that lagged values (LD, L2D, L3D and L4D) can jointly
influence our dependent variable (Inflation Rates). On the other hand, lagged values
(L5D, L6D and L7D) are not significant since they had p-values that are greater than the
critical value = 0.05. Thus, lagged values (L5D, L6D and L7D) cannot influence the
Table 7.3 Granger Causality Test for the Inflation Rates of Indonesia and Crude Oil
Prices
Inflation Rates
5%
Country P>
Critical
|z|
Value
Indonesia 0.000 0.0500
of Indonesia) was tested. Using Granger Causality Test, note that the p-value = 0.000
163
which is less than the critical value = 0.05. This follows that 𝐻0 was rejected. Hence, we
can say that Crude Oil Prices does “Granger Cause” the Inflation Rates of Indonesia.
Exchange Rates
Figure 3.3 Lagged Values Criterion Selection for the Exchange Rates of Indonesia
In Figure 3.3, the researchers observed that all criteria (LR, FPE, AIC, HQIC and
SBIC) had their lowest value under the lagged value 8. In this scenario, the lagged value
is p=8.
164
Indonesia
Exchange Rates
5%
Country
Test Critical
Statistic Value
Indonesia 0.221 -1.9500
Indonesia is stationary or not stationary. Given that the absolute value of the test statistic
follows that 𝐻0 (𝐻0 : Exchange Rates of Indonesia are not stationary) cannot be rejected.
Hence, it is safe to say that Exchange Rates are non-stationary
Table 7.5 Johansen Cointegration Test of the Exchange Rates of Indonesia and
Crude Oil Prices
Country Maximu Exchange Rates
m Rank Trace 5%
Statistic Critical
Value
0 79.2666 15.41
Indonesia
1 9.8093 3.76
165
researchers rejected 𝐻0 (𝐻0 : Crude Oil Prices and Exchange Rates of Indonesia do not
Figure 7.4 VECM Table for the Exchange Rates of Indonesia and Crude Oil Prices
166
Exchange Rates. Note with exchange rates, it had a lagged value of p=8, then in Figure
7.4, all lagged values (LD, L2D, L3D, L4D, L5D, L6D and L7D) are significant since
their p-values are less than the set critical value 0.05. This means that lagged values (LD,
L2D, L3D, L4D, L5D, L6D and L7D) can jointly influence the dependent variable
(Exchange Rates).
167
Table 7.6 Granger Causality Test for the Exchange Rates of Indonesia and Crude
Oil Prices
Exchange Rates
5%
Country P>
Critical
|z|
Value
of Indonesia) was tested. Using Granger Causality Test, note that the p-value = 0.000
which is less than the critical value = 0.05. This follows that 𝐻0 was rejected. Hence, we
can say that Crude Oil Prices does “Granger Cause” the Exchange Rates of Indonesia.
168
Interest Rates
Figure 7.5 Lagged Values Criterion Selection for the Interest Rates of Indonesia
In Figure 7.5, the researchers observed that FPE and AIC criteria had their lowest
value under the lagged value 8 while LR, HQIC and SBIC had their lowest values under
the lagged value of 7. In this scenario, the researchers followed the rule of the majority.
So, the lagged value is p=7
169
Table 7.7 Augmented Dickey-Fuller Test for Unit Root of the Interest Rate of
Indonesia
Interest Rates
5%
Country
Test Critical
Statistic Value
Indonesia -0.304 -1.9500
. In Table 7.7, the researchers tested whether the given data (Interest Rates) of
Indonesia is stationary or not stationary. Given that the absolute value of the test statistic
follows that 𝐻0 (𝐻0 : Interest Rates of Indonesia are not stationary) cannot be rejected.
Hence, it is safe to say that Interest Rates is non-stationary.
170
Table 7.8 Johansen Cointegration Test for the Interest Rate of Indonesia and Crude
Oil Prices
Rank Trace 5%
Statistic Critic
al
Value
0 79.0236 15.41
Indonesia
1 10.0122 3.76
researchers rejected 𝐻0 (𝐻0 : Crude Oil Prices and Interest Rates of Indonesia do not
171
Figure 7.6 VECM Table for the Interest Rate of Indonesia and Crude Oil Prices
172
that it’s significant. Thus, there is a long run causality running from Crude Oil to Interest
Rates. Note with interest rates, it had a lagged value of p=7, then in Figure 7.6, lagged
values (L5D and L6D) are significant since their p-values are less than the set critical
value 0.05. This means that lagged values (L5D and L6D) can jointly influence our
dependent variable (Interest Rates). On the other hand, lagged values (LD, L2D, L3D and
L4D) are not significant since they have p-values that are greater than the critical value =
0.05. Thus, lagged values (LD, L2D, L3D and L4D) cannot influence our dependent
variable (Interest Rates).
Table 7.9 Granger Causality Test for the Interest Rates of Indonesia and Crude Oil
Prices
Interest Rates
5%
Country
P > |z| Critical
Value
Indonesia) was tested. Using Granger Causality Test, note that the p-value = 0.281 which
173
Indonesia.
the Inflation Rates and Exchange of Indonesia. Specifically, Crude Oil Prices does
“Granger Cause” on the Inflation Rates and Exchange of Indonesia. Though Indonesia is
an emerging crude oil exporting country, still the fluctuations of crude oil prices creates
an impact on the inflation and exchange rates of this country. On the contrary, it is worth
noting that Crude Oil Prices does not “Granger Cause” on the Interest Rates of Indonesia.
That means, the fluctuations of the Crude Oil Prices does not create an impact on the
interest rates of Indonesia.
174
Appendix H
Malaysia
Inflation Rates
Figure 8.1 Lagged Values Criterion Selection for the Inflation Rates of Malaysia
4.59522 under lagged value of 6 while LR, FPE, AIC and HQIC had their lowest values
under the lagged value of 7. In this scenario, the researchers followed the rule of the
175
Malaysia
Inflation Rates
Test 5%
Country
Statistic Critical
Value
Malaysia -0.493 -1.9500
Malaysia is stationary or not stationary. Given that the absolute value of the test statistic
is 0.493, which is less than the absolute value of our critical value, which is 1.950. This
follows 𝐻0 (𝐻0 : Inflation Rates of Malaysia are not stationary) cannot be rejected. Hence,
it is safe to say that Inflation Rates are non-stationary
Table 8.2 Johansen Cointegration Test for the Inflation Rates of Malaysia and
Crude Oil Prices
Rank Trace 5%
Statistic Critical
Value
0 104.3336 15.41
Malaysia
1 18.6699 3.76
176
researchers rejected 𝐻0 (𝐻0 : Crude Oil Prices and Inflation Rates of Malaysia do not
Figure 8.2 VECM Table for the Inflation Rates of Malaysia and Crude Oil Prices
177
values (LD, L2D, L3D, L4D and L5D) are significant since their p-values are less than
the set critical value 0.05. This means that lagged values (LD, L2D, L3D, L4D and L5D)
can jointly influence the dependent variable (Inflation Rates). On the other hand, lagged
value (L6D) is not significant since its have p-value is greater than the critical value =
0.05. Thus, lagged value (L6D) cannot influence the dependent variable (Inflation Rates).
178
Table 8.3 Granger Causality Test for the Inflation Rates of Malaysia and Crude Oil
Prices
Inflation Rates
5%
Country P>
Critical
|z|
Value
Malaysia 0.007 0.0500
of Malaysia) was tested. Using Granger Causality Test, note that the p-value = 0.007
can be said that Crude Oil Prices does “Granger Cause” the Inflation Rates of Malaysia.
179
Exchange Rates
Figure 8.3 Lagged Values Criterion Selection for the Exchange Rates of Malaysia
In Figure 8.3, the researchers observed that HQIC and SBIC criteria had their
lowest values under the lagged value 5 while LR, FPE and AIC had their lowest values
under the lagged value 8. In this scenario, the researchers followed the rule of the
180
Malaysia
Exchange Rates
5%
Country
Test Critical
Statistic Value
Malaysia 0.309 -1.9500
follows 𝐻0 (𝐻0 :Exchange Rates of Malaysia are not stationary) cannot be rejected. Hence,
it is safe to say that Exchange Rates are non-stationary.
181
Table 8.5 Johansen Cointegration Test of the Exchange Rates of Malaysia and
Crude Oil Prices
Rank Trace 5%
Statistic Critical
Value
0 57.6869 15.41
Malaysia
1 10.8865 3.76
researchers rejected 𝐻0 (𝐻0 : Crude Oil Prices and Exchange Rates of Malaysia do not
182
Figure 8.4 VECM Table for the Exchange Rates of Malaysia and Crude Oil Prices
183
8.4, lagged values (LD, L2D, L3D and L4D) are significant since their p-values are less
than the set critical value 0.05. This means that lagged values (LD, L2D, L3D and L4D)
can jointly influence the dependent variable (Exchange Rates). On the other hand, lagged
values (L5D, L6D and L7D) are not significant since they had p-values that are greater
than the critical value = 0.05. Thus, lagged values (L5D, L6D and L7D) cannot influence
the dependent variable (Exchange Rates).
Table 8.6 Granger Causality Test for the Exchange Rate of Malaysia and Crude Oil
Price
Exchange Rates
5%
Country P>
Critical
|z|
Value
Malaysia 0.128 0.0500
of Malaysia) was tested. Using Granger Causality Test, note that the p-value = 0.128
184
which is greater than the critical value = 0.05. This follows that 𝐻0 was not rejected.
of Malaysia.
Interest Rates
Figure 8.5 Lagged Values Criterion Selection for the Interest Rates of Malaysia
SBIC) had their lowest value under the lagged value 6. In this scenario, the lagged value
is p=6.
185
Table 8.7 Augmented Dickey-Fuller Test for Unit Root of the Interest Rate of
Malaysia
Interest Rates
5%
Country
Test Critical
Statistic Value
Malaysia -0.156 -1.9500
follows that 𝐻0 (𝐻0 : Interest Rates of Malaysia are not stationary) cannot be rejected.
Hence, it is safe to say that Inflation Rates are non-stationary.
186
Table 8.8 Johansen Cointegration Test for the Interest Rate of Malaysia and Crude
Oil Prices
Rank Trace 5%
Statistic Critical
Value
0 69.0714 15.41
Malaysia
1 12.6081 3.76
researchers rejected 𝐻0 (𝐻0 : Crude Oil Prices and Interest Rates of Malaysia do not
187
Figure 8.6 VECM Table for the Interest Rate of Malaysia and Crude Oil Price
188
values (LD, L2D and L3D) are significant since their p-values are less than the set critical
value 0.05. This means that lagged values (LD, L2D and L3D) can jointly influence the
dependent variable (Interest Rates). On the other hand, lagged values (L4D and L5D) are
not significant since they had p-values that are greater than the critical value = 0.05. Thus,
lagged values (L4D and L5D) cannot influence our dependent variable (Interest Rates).
Table 8.9 Granger Causality Test for the Interest Rates of Malaysia and Crude Oil
Prices
Interest Rates
5%
Country P>
Critical
|z|
Value
Malaysia 0.051 0.0500
Malaysia) was tested. Using Granger Causality Test, note that the p-value = 0.051 which
can be said that Crude Oil Prices does not granger cause the Interest Rates of Malaysia.
the Inflation Rates of Malaysia. Specifically, Crude Oil Prices does “Granger Cause” on
189
the Inflation Rates of Malaysia. Though Malaysia is an emerging crude oil exporting
country, still the fluctuations of crude oil prices creates an impact on the inflation rates of
this country. On the contrary, it is worth noting that Crude Oil Prices does not “Granger
Cause” on the Exchange Rates and Interest Rates of Malaysia. That means, the
fluctuations of the Crude Oil Prices does not create an impact on the exchange and
interest rates of Malaysia.
190
Appendix I
Mongolia
Inflation Rates
Figure 9.1 Lagged Values Criterion Selection for Inflation Rates of Mongolia
7.00685 under the lagged value of 6 while LR, FPE, AIC and HQIC had their lowest
values under the lagged value 8. In this scenario, the researchers followed the rule of the
191
Mongolia
Inflation Rates
Test 5%
Country
Statistic Critical
Value
Mongolia -0.570 -1.9500
Mongolia is stationary or not stationary. Given that the absolute value of the test statistic
follows that 𝐻0 (𝐻0 : Inflation Rates of Mongolia are not stationary) cannot be rejected.
Table 9.2 Johansen Cointegration Test for the Inflation Rates of Mongolia and
Crude Oil Prices
Country Maximu Inflation Rates
m Rank Trace 5%
Statistic Critical
Value
Mongolia 0 46.8297 15.41
192
1 15.7167 3.76
researchers rejected 𝐻0 (𝐻0 : Crude Oil Prices and Inflation Rates of Mongolia do not
Figure 9.2 VECM Table for the Inflation Rates of Mongolia and Crude Oil Prices
193
194
values (LD and L2D) are significant since their p-values are less than the set critical value
0.05. This means that lagged values (LD and L2D) can jointly influence the dependent
variable (Inflation Rates). On the other hand, lagged values (L3D, L4D, L5D, L6D and
L7D) are not significant since they had p-values that are greater than the critical value =
0.05. Thus, lagged values (L3D, L4D, L5D, L6D and L7D) cannot influence the
Table 9.3 Granger Causality Test for the Inflation Rates of Mongolia and Crude Oil
Prices
Inflation Rates
5%
Country P>
Critical
|z|
Value
Mongolia 0.808 0.0500
In Table 9.3, 𝐻0 (𝐻0 : Crude Oil Prices do not "Granger Cause" the Inflation Rates of
Mongolia) was tested. Using Granger Causality Test, note that the p-value = 0.880 which
195
is greater than the critical value = 0.05. This follows that 𝐻0 was not rejected. Hence, we
can say that Crude Oil Prices does not “Granger Cause” the Inflation Rates of Mongolia.
Exchange Rates
Figure 9.3 Lagged Values Criterion Selection for the Exchange Rates of Mongolia
22.6714 under lagged value of 7 while LR, FPE, AIC and HQIC criterias had their lowest
values under the lagged value of 8. In this scenario, the researchers followed the rule of
the majority. So, the lagged value is p=8.
Mongolia
Exchange Rates
Country
Test 5%
196
Statistic Critical
Value
Mongolia 0.15 -1.9500
follows that 𝐻0 (𝐻0 : Exchange Rates of Mongolia are not stationary) cannot be rejected.
Table 9.5 Johansen Cointegration Test of the Exchange Rates of Mongolia and
Crude Oil Prices
Rank Trace 5%
Statistic Critical
Value
0 85.5251 15.41
Mongolia
1 9.5859 3.76
197
researchers rejected 𝐻0 (𝐻0 : Crude Oil Prices and Exchange Rates of Mongolia do not
Figure 9.4 VECM Table for the Exchange Rates of Mongolia and Crude Oil Prices
198
Since, the researchers have found out that the variables are cointegrated, the Vector
Error Correction Model (VECM) was ran. In our VECM Table above, observe that the
199
value of the error correction term (Coef = -2.628364) and since its p-value = 0.000, it can
be said that it’s significant. Thus, there is a long run causality running from Crude Oil to
3.4, all lagged values (LD, L2D, L3D, L4D, L5D, L6D and L7D) are significant since
their p-values are less than the set critical value 0.05. This means that lagged values (LD,
L2D, L3D, L4D, L5D, L6D and L7D) can jointly influence the dependent variable
(Exchange Rates).
Table 9.6 Granger Causality Test for the Exchange Rates of Mongolia and Crude
Oil Prices
Exchange Rates
5%
Country
P > |z| Critical
Value
Mongolia 0.000 0.0500
of Mongolia) was tested. Using Granger Causality Test, note that the p-value = 0.000
can be said that Crude Oil Prices does "Granger Cause" the Exchange Rates of Mongolia.
Interest Rates
Figure 9.5 Lagged Values Criterion Selection for the Interest Rates of Mongolia
200
SBIC) had their lowest values under lagged value 7. In this scenario, the lagged value is
p=7.
Mongolia
Interest Rates
5%
Country
Test Critical
Statistic Value
Mongolia -0.341 -1.9500
201
follows that 𝐻0 (𝐻0 : Interest Rates of Mongolia are not stationary) cannot be rejected.
Table 9.8 Johansen Cointegration Test for the Interest Rate of Mongolia and Crude
Oil Prices
Rank Trace 5%
Statistic Critical
Value
0 71.9056 15.41
Mongolia
1 14.6452 3.76
researchers rejected 𝐻0 (𝐻0 : Crude Oil Prices and Interest Rates of Mongolia do not
Figure 9.6 VECM Table for the Interest Rate of Mongolia and Crude Oil Prices
202
203
values (LD, L2D, L3D and L4D) are significant since their p-values are less than the set
critical value 0.05. This means that lagged values (LD, L2D, L3D and L4D can jointly
influence the dependent variable (Interest Rates). On the other hand, lagged values (L5D
and L6D) are not significant since they had p-values that are greater than the critical value
= 0.05. Thus, lagged values (L5D and L6D) cannot influence the dependent variable
(Interest Rates).
Table 9.9 Granger Causality Test for the Interest Rates of Mongolia and Crude Oil
Price
Interest Rates
5%
Country P>
Critical
|z|
Value
Mongolia 0.114 0.0500
Mongolia) was tested. Using Granger Causality Test, note that the p-value = 0.114 which
is greater than our critical value = 0.05. This follows that Ho was not rejected. Hence, it
Mongolia.
204
the Exchange Rates of Mongolia. Specifically, Crude Oil Prices does “Granger Cause” on
the Exchange Rates of Mongolia. Though Mongolia is emerging crude oil exporting
country, still the fluctuation of crude oil prices creates an impact on the exchange rates of
this country. On the contrary, it is worth noting that Crude Oil Prices does not “Granger
Cause” on the Inflation Rates and Interest Rates of Mongolia. That means, the
fluctuations of the Crude Oil Prices does not create an impact on the inflation and interest
rates of Mongolia.
Appendix J
Vietnam
205
Inflation Rates
Figure 10.1 Lagged Values Criterion Selection for Inflation Rates of Vietnam
Vietnam
206
Inflation Rates
Test 5%
Country
Statistic Critical
Value
Vietnam -0.826 -1.9500
Vietnam is stationary or not stationary. Given that the absolute value of the test statistic is
follows that 𝐻0 (𝐻0 : Inflation Rates of Vietnam are not stationary) cannot be rejected.
Table 10.2 Johansen Cointegration Test for the Inflation Rates of Vietnam and
Crude Oil Prices
207
Rank Trace 5%
Statistic Critical
Value
0 74.1451 15.41
Vietnam
1 8.3565 3.76
researchers rejected 𝐻0 (𝐻0 : Crude Oil Prices and Inflation Rates of Vietnam do not
Figure 10.2 VECM Table for the Inflation Rates of Vietnam and Crude Oil Prices
208
he Vector Error Correction Model (VECM) was ran. In Figure 10.2, note that the value of
209
values (LD, L2D, L3D, L4D and L5D) are significant since their p-values are less than
the set critical value 0.05. This means that lagged values (LD, L2D, L3D, L4D and L5D)
can jointly influence the dependent variable (Inflation Rates). On the other hand, lagged
values (L6D and L7D) are not significant since they had p-values that are greater than the
critical value = 0.05. Thus, lagged values (L6D and L7D) cannot influence the dependent
variable (Inflation Rates).
Table 10.3 Granger Causality Test for the Inflation Rates of Vietnam and Crude Oil
Prices
Inflation Rates
5%
Country P>
Critical
|z|
Value
Vietnam 0.000 0.0500
of Vietnam) was tested. Using Granger Causality Test, note that the p-value = 0.000
which is less than our critical value = 0.05. This follows that 𝐻0 was rejected. Hence, it
can be said that Crude Oil Prices does “Granger Cause” the Inflation Rates of Vietnam.
210
Exchange Rates
Figure 10.3 Lagged Values Criterion Selection for the Exchange Rates of Vietnam
SBIC) had their lowest values under the lagged value of 7. In this scenario, the lagged
value is p=7.
Vietnam
211
Exchange Rates
Test 5%
Country
Statistic Critical
Value
Vietnam 0.173 -1.9500
follows that 𝐻0 (𝐻0 : Exchange Rates of Vietnam are not stationary) cannot be rejected.
Table 10.5 Johansen Cointegration Test of the Exchange Rates of Vietnam and
Crude Oil Prices
212
Rank Trace 5%
Statist Critical
ic Value
49.86
0 47 15.41
Vietnam
9.074
1 3 3.76
researchers rejected 𝐻0 (𝐻0 : Crude Oil Prices and Exchange Rates of Vietnam do not
Figure 10.4 VECM Table for the Exchange Rates of Vietnam and Crude Oil Prices
213
Vector Error Correction Model (VECM) was ran. In Figure 10.4, note that the value of
214
10.4, lagged values (LD, L2D, L3D, L4D and L6D) are significant since their p-values
are less than the set critical value 0.05. This means that lagged values (LD, L2D, L3D,
L4D and L6D) can jointly influence the dependent variable (Exchange Rates). On the
other hand, lagged value (L5D) is not significant since its p-value = 0.574 is greater than
the critical value = 0.05. Thus, lagged value (L5D) cannot influence the dependent
variable (Exchange Rates).
Table 10.6 Granger Causality Test for the Exchange Rates of Vietnam and Crude
Oil Prices
Exchange Rates
5%
Country
P > |z| Critica
l Value
Vietnam 0.125 0.0500
In Table 10.6, 𝐻0 (𝐻0 : Crude Oil Prices do not "Granger Cause" the Exchange
Rates of Vietnam) was tested. Using Granger Causality Test, note that the p-value = 0.125
which more than the critical value = 0.05. This follows that 𝐻0 was not rejected. Hence, it
can be said that Crude Oil Prices does not “Granger Cause” the Exchange Rates of
Vietnam.
215
Interest Rates
Figure 10.5 Lagged Values Criterion Selection for the Interest Rates of Vietnam
Vietnam
216
Interest Rates
5%
Country
Test Critical
Statistic Value
Vietnam -0.33 -1.9500
follows that 𝐻0 (𝐻0 : Interest Rates of Vietnam are not stationary) cannot be rejected.
Table 10.8 Johansen Cointegration Test for the Interest Rates of Vietnam and Crude
Oil Prices
217
Rank Trace 5%
Statistic Critical
Value
0 54.7569 15.41
Vietnam
1 16.2234 3.76
researchers rejected 𝐻0 (𝐻0 : Crude Oil Prices and Interest Rates of Vietnam do not
Figure 10.6 VECM Table for the Interest Rates of Vietnam and Crude Oil Prices
218
the Vector Error Correction Model (VECM) was ran. In Figure 10.6, note that the value
of the error correction term (Coef = -1.54113) and since its p-value = 0.000, it can be said
219
Rates. Note with interest rates, it had a lagged value of p=8, then in Figure 10.6, only
lagged value (LD) is significant since its p-value = 0.001 is less than the set critical value
0.05. This means that lagged value (LD) can influence the dependent variable (Interest
Rates). On the other hand, lagged values (L2D, L3D, L4D, L5D, L6D and L7D) are not
significant since they had p-values that are greater than the critical value = 0.05. Thus,
lagged values (L2D, L3D, L4D, L5D, L6D and L7D) cannot influence the dependent
variable (Interest Rates).
Table 10.9 Granger Causality Test for the Interest Rates of Vietnam and Crude Oil
Prices
Interest Rates
5%
Country
P > |z| Critical
Value
Vietnam 0.016 0.0500
In Table 10.9, 𝐻0 (𝐻0 : Crude Oil Prices do not "Granger Cause" the Interest Rates
of Vietnam) was tested. Using Granger Causality Test, note that the p-value = 0.016
which less than the critical value = 0.05. This follows that 𝐻0 was rejected. Hence, it can
be said that Crude Oil Prices does “Granger Cause”the Interest Rates of Vietnam.
220
the Inflation Rates and Interest Rates of Vietnam. Specifically, Crude Oil Prices does
“Granger Cause” on the Inflation Rates and Interest Rates of Vietnam. Though Vietnam is
an emerging crude oil exporting country, still the fluctuation of crude oil prices creates an
impact on the inflation and interest rates of this country. On the contrary, it is worth
noting that Crude Oil Prices does not “Granger Cause” on the Exchange Rates of
Vietnam. That means, the fluctuations of the Crude Oil Prices does not create an impact
on the exchange rates of Vietnam.
221
Appendix K
Interview Questions and Answers
Interviewee: Emil Uy
Course: Accountancy
University: University of Santo Tomas
Jobs:
1.) Certified Public Accountant
2.) Financial Analyst at Deutsche Bank
3.) Fund Accountant at Deutsche Bank
4.) Trust Portfolio Manager at RCBC
Questions and Answers
1.) Do you think oil prices have an impact on the inflation rates of the Philippines? If yes
why?
Yes, oil prices has an impact on the inflation rates of the Philippines since it directly
affect almost all commodities in the Philippines considering the cost for
transport/freight/logistics. The added cost is passed on to the consumers/buyers and
ultimately increasing the prices of the commodities.
2.) Do you think oil prices have an impact on the exchange rates of the Philippines? If yes
why?
Yes, oil prices has a impact on the exchange rates of the Philippines since oil
producing countries can actually manipulate the price of oil, and since the Philippines is
222
dependent in importing oil, and are priced in USD (foreign currency), the higher the oil
price, the more peso is needed to purchase US Dollar to buy oil and ultimately weakening
the peso.
3.) Do you think oil prices has an impact on the interest rates of the Philippines? If yes
why?
Yes, it's more of the interest rates affecting the oil prices; the higher the interest
rates, there is lesser money to buy oil aside from the necessities. But in some cases like
scarce supply of oil (e.g. Stoppage in oil production, calamities in oil producing countries,
etc.) where oil producers will have to price their oil at a higher price to recover their
losses; only those who can afford the high cost can purchase the oil and others will result
to borrowing in order to meet their needs and therefore will drive the interest rates.
223
Interviewee: Tomas Tiu
Undergraduate: University of the Philippines-Diliman
Course: Accountancy
Jobs:
1.) Former Vice President, Country Business Manager for Philippines and Micronesia of
Citibank TPS
2.) Professor at University of Santo Tomas
3.) Professor at De La Salle University
4.) Certified Public Accountant
Questions and Answers
1.) Do you think oil prices have an impact on the inflation rates of the Philippines? If yes
why?
Yes. Oil prices increases have an inflationary effect when they increase
significantly because a large part of the economy depends on oil like the transport
industry to carry goods across the country and to move people around or to generate
electricity. When oil prices go up, the cost of transporting goods by whatever mode like
trucks, ships, planes will go up. Manufacturers will have to pass on the higher cost of
transportation to customers. Transportation costs of people moving from one place or
another using buses; cars, trains, planes or ships will go up. Transportation companies
will have to increase prices. The increase costs will increase the cost of living generally.
This will fore employees to ask for wage increases to cope with the higher cost of living.
224
Prices of goods generally increase faster when oil prices increases significantly than when
oil prices go down significantly where prices of goods generally do not go down
correspondingly significantly. The effect of an oil price increase against an oil price
decrease is not linear.
2.) Do you think oil prices has an impact on the exchange rates of the Philippines? If yes
why?
Yes. The important distinguishing fact is that oil prices MUST increase/decrease
significantly to have an impact on the foreign exchange. Small increases or decreases
does not have significant impact on the foreign exchange rate of the Philippine peso.
3.) Do you think oil prices has an impact on the interest rates of the Philippines? If yes
why?
Yes. When oil prices increases very significantly like during the 1970s and 1980s
when oil prices increased multiple times, they had severe impacts on the country's GDP
and balance of payments thus impacting fiscal and monetary policy. Significant oil prices
increase invariably cause inflation to go up. When inflation rates go up significantly, the
government has to raise interest rates to cool inflation rates. Interest rates have a direct
bearing on the foreign exchange rates since it is a component is determining forward
rates.
A direct example is the US had high inflation in the late 1970s and early 1980s due
in part to huge increases in oil prices. The US Federal Reserve had to increase interest
rates causing the strengthening of the US dollar.
225
226

Thsfina Group 21 Thesis

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Thsfina Group 21 Thesis

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The Impact of Crude Oil Prices on the Inflation Rate, Exchange Rate, and Interest

Rate of Emerging Oil Exporting and Oil Importing Countries

An Undergraduate Thesis Presented to the

In Completion of the Requirements for the Degree of

encouragement, prayers, and support definitely helped us in every aspect.

is the most affected country.

1.1 Background of the Study..................................................................1

1.2 Statement of the Problem ................................................................3

1.4 Statement of the Hypothesis.............................................................4

1.6 Scope and Limitations......................................................................6

1.7 Significance of the Study..................................................................7

Chapter 2: Review of Related Literature

2.1 Review of Related Literature...........................................................8

2.2 Research Gap..................................................................................15

2.3 Literature Map................................................................................16

3.1 Theoretical Framework..................................................................17

3.2 Operational Framework.................................................................19

3.3 Definition of Terms.........................................................................21

4.1 Research and Sampling Design.....................................................24

4.2 Data Description and Collection Method.....................................25

4.3 Method of Data Analysis................................................................26

Chapter 5: Results and Analysis.....................................................................................32

Chapter 6: Conclusion and Recommendation...............................................................48

1.1 Lagged Values Criterion Selection

1.1 Background of the Study

Crude oil is an important commodity for people since it is a necessity in the

Emerging Crude Oil Crude Oil Year

barrels per day (Central Intelligence Agency, 2014).

Table B. Crude Oil Imports and Exports of Oil Importing Countries

Crude Oil Crude Oil Crude Oil Year

exports in 2007 (Central Intelligence Agency, 2014).

1.2 Statement of the Problem

The researchers answered the following questions:

and crude oil importing countries?

rates in Philippines, Singapore, Thailand, Laos, Cambodia, Malaysia, Vietnam, Brunei,

using monthly data.

1.4 Statement of the Hypothesis

X= Philippines, Singapore, Thailand, Laos, Cambodia, Malaysia, Vietnam, Brunei,

Indonesia and Mongolia.

𝐻𝑂 = Inflation rates of country X are not stationary.

𝐻𝑂 = Exchange rates of country X are not stationary.

𝐻𝑂 = Interest rates of country X are not stationary.

following assumptions have been made:

crude oil exporting countries.

Cambodia are crude oil importing countries.

dependent on supply and demand of crude oil and market sentiment.

based on prediction wherein a variable X Granger-causes Y if Y can be better predicted

1.7 Significance of the Study

plays an essential role as an input in the economy specifically a necessity to everyone’s

companies, public transportation systems, and manufacturing industry of each country

exchange rate, and interest rate.

2.1 Related Literature

development, a period of rapid economic growth, decreasing unemployment, and a

markets showed an even stronger discontinuity than in the overall economy. In

Houthakker & Sachs, 1980).

national elections were important factors in developing inflation episodes. Furthermore,

shocks, adjustments in the political orientation of governments, and government debt

policy (Boschen & Weise, 2003).

recurrence continue to be an important concern among policymakers and in the popular

(Barzky & Kilian,2001).

related with political disturbances in the Middle East (Kilian,2008).

lower yields. (Darby,1982).