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Energy prices and exchange rates of the U.S. dollar: Further evidence from linear and nonlinear causality analysis

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  • Wang, Yudong
  • Wu, Chongfeng
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    Abstract

    The causality relationships between energy prices and exchange rates have been investigated in many existing studies. Previous investigations ignore the possible nonlinear behaviors which may be caused by asymmetry, persistence or structural breaks. To fill this gap, we apply both linear and nonlinear causality tests to examine the causal relationships between energy prices and exchange rates of the U.S. dollar. Our results show that in the period before recent financial crisis, unidirectional linear causality running from petroleum prices to exchange rates and unidirectional nonlinear causality running from exchange rates to natural gas prices are revealed. In the period after the financial crisis, the bidirectional nonlinear causality relationships between petroleum prices and exchange rates can be found and there are no causality between exchange rates and natural gas prices. Moreover, we examine the source of nonlinear behaviors of causality relationships. Our evidence indicates that both volatility spillover and regime shift contribute to nonlinear causality and the explanation power of the former one is much stronger.

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    Bibliographic Info

    Article provided by Elsevier in its journal Economic Modelling.

    Volume (Year): 29 (2012)
    Issue (Month): 6 ()
    Pages: 2289-2297

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    Handle: RePEc:eee:ecmode:v:29:y:2012:i:6:p:2289-2297

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    Web page: http://www.elsevier.com/locate/inca/30411

    Related research

    Keywords: Energy prices; Exchange rates; Causality analysis; Nonlinearity;

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    Cited by:
    1. Joscha Beckmann & Robert Czudaj, 2013. "Is there a Homogeneous Causality Pattern between Oil Prices and Currencies of Oil Importers and Exporters?," Ruhr Economic Papers 0431, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
    2. Tiwari, Aviral Kumar & Mutascu, Mihai Ioan & Albulescu, Claudiu Tiberiu, 2013. "The influence of the international oil prices on the real effective exchange rate in Romania in a wavelet transform framework," Energy Economics, Elsevier, vol. 40(C), pages 714-733.
    3. Zied Ftiti & Aviral Tiwari & Ibrahim Fatnassi, 2014. "Oil price and macroeconomy in India - An evolutionary cospectral coherence approach," Working Papers 2014-068, Department of Research, Ipag Business School.

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