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The Links between the Price of Oil and the Value of US Dollar

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  • Yi Zhang

    (Suffolk University, Boston, USA)

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    Abstract

    Using monthly data, this paper studies the cointegration between the real price of oil and the real effective exchange rate of US dollar allowing for structural breaks. Contrary to the conclusion from previous literature, this paper finds that the cointegration between the oil price and the value of US dollar does not significantly exist unless the effects of two structural breaks in the past, November 1986 and February 2005, are controlled for.

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    File URL: http://www.econjournals.com/index.php/ijeep/article/download/546/307
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    File URL: http://www.econjournals.com/index.php/ijeep/article/view/546/307
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    Bibliographic Info

    Article provided by Econjournals in its journal International Journal of Energy Economics and Policy.

    Volume (Year): 3 (2013)
    Issue (Month): 4 ()
    Pages: 341 - 351

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    Handle: RePEc:eco:journ2:2013-04-19

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    Web page: http://www.econjournals.com

    Related research

    Keywords: Oil price; Exchange rate; Cointegration;

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    1. Narayan, Paresh Kumar & Narayan, Seema & Prasad, Arti, 2008. "Understanding the oil price-exchange rate nexus for the Fiji islands," Energy Economics, Elsevier, vol. 30(5), pages 2686-2696, September.
    2. Benassy-Quere, Agnes & Mignon, Valerie & Penot, Alexis, 2007. "China and the relationship between the oil price and the dollar," Energy Policy, Elsevier, vol. 35(11), pages 5795-5805, November.
    3. Domenico Ferraro & Ken Rogoff & Barbara Rossi, 2011. "Can Oil Prices Forecast Exchange Rates?," Working Papers 11-05, Duke University, Department of Economics.
    4. Allan w. Gregory & Bruce E. Hansen, 1992. "residual-Based Tests for Cointegration in Models with Regime Shifts," Working Papers 862, Queen's University, Department of Economics.
    5. Zhang, Yue-Jun & Fan, Ying & Tsai, Hsien-Tang & Wei, Yi-Ming, 2008. "Spillover effect of US dollar exchange rate on oil prices," Journal of Policy Modeling, Elsevier, vol. 30(6), pages 973-991.
    6. van Amano, Robert A & Norden, Simon, 1998. "Exchange Rates and Oil Prices," Review of International Economics, Wiley Blackwell, vol. 6(4), pages 683-94, November.
    7. Huang, Ying & Guo, Feng, 2007. "The role of oil price shocks on China's real exchange rate," China Economic Review, Elsevier, vol. 18(4), pages 403-416.
    8. Lizardo, Radhamés A. & Mollick, André V., 2010. "Oil price fluctuations and U.S. dollar exchange rates," Energy Economics, Elsevier, vol. 32(2), pages 399-408, March.
    9. Golub, Stephen S, 1983. "Oil Prices and Exchange Rates," Economic Journal, Royal Economic Society, vol. 93(371), pages 576-93, September.
    10. Jen-Eem Chen & Chin-Yu Lee & Lim-Thye Goh, 2013. "Exchange rate and oil price: asymmetric adjustment," Applied Economics Letters, Taylor & Francis Journals, vol. 20(10), pages 987-990, July.
    11. Filip Novotný, 2012. "The Link Between the Brent Crude Oil Price and the US Dollar Exchange Rate," Prague Economic Papers, University of Economics, Prague, vol. 2012(2), pages 220-232.
    12. Chaudhuri, Kausik & Daniel, Betty C., 1998. "Long-run equilibrium real exchange rates and oil prices," Economics Letters, Elsevier, vol. 58(2), pages 231-238, February.
    13. Sadorsky, Perry, 2000. "The empirical relationship between energy futures prices and exchange rates," Energy Economics, Elsevier, vol. 22(2), pages 253-266, April.
    14. Robert A. Amano & Simon van Norden, 1995. "Oil Prices and the Rise and Fall of the U.S. Real Exchange Rate," International Finance 9502001, EconWPA.
    15. Chen, Shiu-Sheng & Chen, Hung-Chyn, 2007. "Oil prices and real exchange rates," Energy Economics, Elsevier, vol. 29(3), pages 390-404, May.
    16. Engle, Robert F & Granger, Clive W J, 1987. "Co-integration and Error Correction: Representation, Estimation, and Testing," Econometrica, Econometric Society, vol. 55(2), pages 251-76, March.
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