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Common Trends and Common Cycles in Oil Price and Real Exchange Rate

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  • Basnet Hem C.

    (Department of Business, Chadron State College, 1000 Main St., Chadron, NE, USA)

  • Vatsa Puneet

    (Shaw Communication Inc., Calgary, AB, Canada)

  • Sharma Subhash

    (Department of Economics, Southern Illinois University, Carbondale, IL, USA)

Abstract

This study explores the long- and short-run movement between oil prices and the real exchange rates of two large oil-exporting countries – Canada and Norway. Cointegration and serial correlation common features tests are jointly used to identify the long-term common trend and short-term common cycles. Our test results find that oil prices and the real exchange rates of the Canadian Dollar and the Norwegian Krone have two shared trends and one shared cycle. The trend–cycle decomposition shows a great deal of positive comovement among the trend and cyclical components. The two currencies show economic dynamics very similar to crude oil prices. They do not exhibit any qualitative differences in the trajectory of the trend and cycles when controlling for different crude oil prices. Our results indicate that oil price fluctuations play significant role in explaining the exchange rate movements of oil-exporting countries.

Suggested Citation

  • Basnet Hem C. & Vatsa Puneet & Sharma Subhash, 2014. "Common Trends and Common Cycles in Oil Price and Real Exchange Rate," Global Economy Journal, De Gruyter, vol. 14(2), pages 1-15, April.
    • Handle: RePEc:bpj:glecon:v:14:y:2014:i:2:p:15:n:2
    DOI: 10.1515/gej-2013-0042
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    Cited by:

    1. Vatsa, Puneet, 2020. "Comovement amongst the demand for New Zealand tourism," Annals of Tourism Research, Elsevier, vol. 83(C).
    2. Vatsa, Puneet & Basnet, Hem C., 2020. "The dynamics of energy prices and the Norwegian economy: A common trends and common cycles analysis," Resources Policy, Elsevier, vol. 68(C).

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