The Effects of Fuel Price and Exchange Rate on Inflation Rate of Lao PDR

Article Sidebar

บทความที่ 12
Published: Jun 30, 2024
Versions:
2024-06-30 (1)
DOI: https://doi.org/10.14456/jmsnpru.2024.12
Keywords:
fuel price exchange rate inflation rate

Main Article Content

Nidsoudaphone VONETHABING
Faculty of Economics and Tourism, Souphanouvong University, Luangprabang, Lao PDR
Thongphanh CHANTHAVONE
Faculty of Economics and Tourism, Souphanouvong University, Luangprabang, Lao PDR
Pheng HER
Faculty of Economics and Tourism, Souphanouvong University, Luangprabang, Lao PDR

Abstract

      This study aims to analyze the impact of fuel prices and exchange rates on the inflation rate of Lao PDR. The quarterly time series data from 1st quarter of 2011 to 4th quarter of 2022 were used to imply with VECM model. The empirical analysis revealed that the exchange rate and inflation rate have both a short-run and long-run relationship as well as a bidirectional relationship where the exchange rate has a positive impact on the inflation rate while the inflation rate has a negative impact on the exchange rate.  There is no significant relationship between fuel prices and inflation, in either both the short or long term.  The speed of adjustment to the long-term equilibrium point of the model is 3.47% and the forecast results of the VECM model that the trend of the three variables is similar, with the inflation rate tending to increase continuously in quarter 1/2023-1/2024, but the increase is less than 6% per quarter.  The price of fuel tends to increase slightly, and in some quarters, there may be a decrease, is also less than 6%.  Meanwhile, the exchange rate tends to rise continuously and increases by more than 10% per quarter.
 
Article history: Received 19 February 2024   
                            Revised 6 June 2024
                            Accepted 10 June 2024   
                            SIMILARITY INDEX = 0.00 %

Article Details

How to Cite
VONETHABING, N., CHANTHAVONE, T., & HER, P. (2024). The Effects of Fuel Price and Exchange Rate on Inflation Rate of Lao PDR. Journal of Management Science Nakhon Pathom Rajabhat University, 11(1), 150–165. https://doi.org/10.14456/jmsnpru.2024.12
Issue
Vol. 11 No. 1 (2024): January-June 2024
Section
Research Articles
Creative Commons License

This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.

The views and opinions of the article appearing in this journal are those of the author. It is not considered a view and responsibility of the editorial staff.

References

Abounoori, A.A., Nazarian, R. & Amiri, A. (2014). Oil price pass-through into domestic inflation:

the case of Iran. International Journal of Energy Economcis and Policy , 4(4):662-669.

Aleksandra D. Zoric. (2019). The importance of exchange rate stability for export growth.

International Academic Conference, IISES : Barcelona.

Altarturi, B.H., Alshammari, A.A., Saiti, B., Erol, T. (2018), A three-way analysis of the relationship

between the USD value and the prices of oil and gold: A wavelet analysis. AIMS Energy, 6(3), 487-504.

Bank of Lao PDR. (2022). Annual Report of Bank of Lao PDR.

Bermingham, C. (2009). Quantifying the impact of oil prices on inflation. The Bank’s

Economic Analysis and Research Department. Quarterly Bulletin 01.

Bhattacharya, K., & Indranil Bhattacharyya. (2001). Impact of Increase in Oil Prices on Inflation

and Output in India. Economic and Political Weekly, 36(51), 4735–4741.

Bleaney, M and Fielding, D. (2002). Exchange rate regimes, inflation and output volatility in

developing countries. J. Dev. Econ., 68 (1), pp. 233-245.

Bobai, F. D. (2012). An analysis of the relationship between petroleum prices and inflation in

Nigeria. International Journal of Business and Commerce, 1(12), 01-07.

Dickey, D. A., & Fuller, W. A. (1981). Likelihood ratio statistics for autoregressive time series with

a unit roots. Econometric, 49, 1057–1072

Feldkircher, M., & Siklos, P. L. (2019). Global inflation dynamics and inflation expectations.

International Review of Economics & Finance, 64, 217-241.

Gagik G. Aghajanyan. (2005). Core inflation in a small transition country: choice of optimal

measures. European Journal of Comparative Economics, 2(1):83-110

Hadi, A.R.A., Hussain, H.I., Zainudin, Z., Rehan, R. (2019). Crude oil price and exchange rates-

the case of Malaysia and Brunei. International Journal of Financial Research, 10(5), 1-10.

Hamilton, J.D. (1994). Time Series Analysis. Princeton, NJ: Princeton University Press.

Jarque, C.M. and Bera, A.K. (1987). A Test for Normality of Observations and Regression

Residuals. International Statistical Review, 55, 163-172.

Johansen, S. (1995). Likelihood-Based Inference in Cointegrated Vector Autoregressive

Models. Oxford: Oxford University Press.

Johansen, S. (1988). Statistical analysis of cointegration vectors. Journal of Economic

Dynamics and Control, 12 (2–3), 231-254.

Johnson, M. (2001). Core Inflation. Technical Report No. 89, Bank of Canada.

Joof, F., & Jallow, O. (2020). The impact of interest rate and inflation on the exchange rate of

the Gambia. International Journal of Economics, Commerce and Management,

United Kingdom, 8 (1), 340-351.

Kargi, B. (2014). Electricity Consumption and Economic Growth: A Long-Term Co-Integration

Analysis for Turkey. International Journal of Economics and Finance, 6, 285-293.

Kiptui, M. (2009). Oil price pass-through into inflation in Kenya. Kenya School of Monetary

Studies Research Centre.

Kpogli, C. (2015). The Impact of Oil Price Changes on Inflation in Ghana. University of Ghana.

Liberto, D. (2023). What Is Crude Oil, and Why Is It Important to Investors? Investopedia.

[Online]. Retrieved April 18, 2023 from https://www.investopedia.com/terms/c/crude-

oil.asp#citation-31

Lutkepohl, H. (2005). New Introduction to Multiple Time Series Analysis. New York: Springer.

M.A.Dąbrowski, M.Papież, M.Rubaszek, S.Śmiech (2022). The role of economic development

for the effect of oil market shocks on oil-exporting countries. Evidence from the

interacted panel VAR model. Energy Econ., 110, 106017

Malhotra, A., & Krishna, S. (2015). The Effect of Crude Oil Prices on Inflation and Interest

Rates in India: Evidence from DCC-GARCH Model. Social Science Electronic

Publishing. [Online]. Retrieved April 18, 2023 from doi:10.2139/ssrn.2472558

Misati, R. N., Nyamongo, E. M., Mwangi, I. (2013). Commodity price shocks and inflation in a net

oil-importing economy. OPEC Energy Review, 37(2), 125-148

Mukhtarov, S., Mammadov, J., & Ahmadov, F. (2019). The Impact of Oil Prices on Inflation: The

Case of Azerbaijan. International Journal of Energy Economics and Policy, 9(4), 97-102.

Musa, N. (2021). Impact of exchange rate volatility on inflation in Nigeria. Department of

Economics, Kogi State University, Anyigba, Kogi, Nigeria.

Nusair, S.A and Dennis, O. (2019). The effects of oil price shocks on Asian exchange rates:

Evidence from quantile regression analysis. Energy Econ., 78, 44-63

Reboredo J.C. (2012). Modelling oil price and exchange rate co-movements. J. Policy Model,

(3),419-440

Saxena, K. K., & Ndule, M. A. (2020). The effect of oil price shocks on inflation in tanzania – an

autoregressive distributed lag and vector autoregressive approach. Bulletin of Pure

and Applied Sciences, Sec. E. Mathematics & Statistics, 39 (2),

Uribe, M. (1997). Exchange-rate-based inflation stabilization: the initial real effects of credible

plans. J. Monet. Econ., 39 (2), 197-221

Urbanovský, T. (2016). The effect of inflation differential on the nominal exchange rate: The

case of USA and Canada. In Proceedings of the 15th International Conference on

Finance and Banking. Karviná: Silesian University in Opava (pp. 422-430).