Oil prices and Exchange rates Spillover Effects over SAARC Countries: A case of Russia-Ukraine War

Abstract

Russia-Ukraine war has caused global economic disruptions, particularly in oil prices and currency exchange rates. These changes can significantly affect the economies of SAARC countries, which rely on oil imports and are vulnerable to exchange rate fluctuations. The primary aim of this study is to examine the volatility spillover effects between oil prices and the exchange rates of SAARC countries during the Russia-Ukraine war, using the VAR-BEKK-GARCH model. The data for the study covers the period from February 24, 2022, to April 3, 2023. The findings reveal that most SAARC countries, such as Bangladesh, India, and Pakistan, are heavily dependent on oil imports. The study also indicates that the Russia-Ukraine war has had a severe impact on the exchange rates of these countries, demonstrating significant volatility spillover effects between oil prices and exchange rates in the SAARC region. Furthermore, the study concludes that geopolitical conflicts, such as the Russia-Ukraine war, have heightened instability in oil prices, exerting considerable pressure on the exchange rates of oil-importing countries within the SAARC region.