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Oil price shocks and exchange rate movements

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  • Volkov, Nikanor I.
  • Yuhn, Ky-hyang

Abstract

This study investigates the effects of oil price shocks on exchange rate movements in five major oil-exporting countries: Russia, Brazil, Mexico, Canada, and Norway. The R2 of the fundamental model doubles in Russia and Brazil, but increases slightly in Canada and Norway when oil prices are added to it. The volatility of exchange rates associated with oil price shocks is significant in Russia, Brazil, and Mexico, but weak in Norway and Canada. It takes much longer for the exchange rate to reach the initial equilibrium level in Russia, Brazil, and Mexico than in Norway and Canada. The asymmetric behavior of exchange rate volatility among countries seems to be related to the efficiency of financial markets rather than to the importance of oil revenues in the economy.

Suggested Citation

  • Volkov, Nikanor I. & Yuhn, Ky-hyang, 2016. "Oil price shocks and exchange rate movements," Global Finance Journal, Elsevier, vol. 31(C), pages 18-30.
    • Handle: RePEc:eee:glofin:v:31:y:2016:i:c:p:18-30
    DOI: 10.1016/j.gfj.2016.11.001
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