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The Evaluation of the USD Currency and the Oil Prices: A Var Analysis

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  • Eleftherios J. Thalassinos
  • Evagelos D. Politis

Abstract

Dollar devaluation creates a huge problem in the world oil industry, leading to a vast decrease in the revenues of the oil producers, though the local oil producers use the local currencies to operate and the oil price is evaluated in dollars. The depreciation of the US dollar reduces the effect of the high prices in oil, making it rather cheap for all the countries and especially for the Eurozone area. The record high exchange rate of the Euro vis-à-vis dollar followed by a subsequent high of the crude oil price, suggests on a relation between the price of the oil and the evaluation of the US dollar. The main aim of this research is to construct an restricted Vector Autoregressive estimation model to simulate the relation between the exchange rate of the U.S. dollar and Euro against the West Texas Intermediate (WTI) prices for light crude oil, in connection with the impulse response of the prices to the various shocks. Lastly, a co integration test will illuminate the possibility of simultaneous long term integration along with Granger causality test to estimate the direction of causality in variables.

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Bibliographic Info

Article provided by European Research Studies Journal in its journal European Research Studies Journal.

Volume (Year): XV (2012)
Issue (Month): 2 ()
Pages: 137-146

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Handle: RePEc:ers:journl:v:xv:y:2012:i:2:p:137-146

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Web page: http://www.ersj.eu/

Related research

Keywords: Banks USD/EURO; WTI; VAR; Impulse Response; Co-integration Analysis;

References

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  1. Robert A. Amano & Simon van Norden, 1995. "Exchange Rates and Oil Prices," International Finance, EconWPA 9509001, EconWPA.
  2. Agnès Bénassy-Quéré & Valérie Mignon & Alexis Penot, 2005. "China and the Relationship Between the Oil Price and the Dollar," Working Papers 2005-16, CEPII research center.
  3. Granger, Clive W J, 1986. "Developments in the Study of Cointegrated Economic Variables," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 48(3), pages 213-28, August.
  4. Robert A. Amano & Simon van Norden, 1995. "Oil Prices and the Rise and Fall of the U.S. Real Exchange Rate," International Finance, EconWPA 9502001, EconWPA.
  5. Sadorsky, Perry, 2000. "The empirical relationship between energy futures prices and exchange rates," Energy Economics, Elsevier, Elsevier, vol. 22(2), pages 253-266, April.
  6. Virginie Coudert & Valérie Mignon & Alexis Penot, 2008. "Oil Price and the Dollar," Post-Print halshs-00353404, HAL.
  7. Johansen, Soren, 1995. "Likelihood-Based Inference in Cointegrated Vector Autoregressive Models," OUP Catalogue, Oxford University Press, Oxford University Press, number 9780198774501, October.
  8. Selahattin Dibooglu, 1995. "Real Disturbances, Relative Prices, and Purchasing Power Parity," International Finance, EconWPA 9502002, EconWPA.
  9. Granger, C. W. J., 1981. "Some properties of time series data and their use in econometric model specification," Journal of Econometrics, Elsevier, Elsevier, vol. 16(1), pages 121-130, May.
  10. Eleftherios J. Thalassinos & Evagelos D. Politis, 2011. "International Stock Markets: A Co-integration Analysis," European Research Studies Journal, European Research Studies Journal, European Research Studies Journal, vol. 0(4), pages 113-130.
  11. Johansen, Soren, 1991. "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, Econometric Society, Econometric Society, vol. 59(6), pages 1551-80, November.
  12. Adrian W. Throop, 1993. "A generalized uncovered interest parity model of exchange rates," Economic Review, Federal Reserve Bank of San Francisco, Federal Reserve Bank of San Francisco, pages 3-16.
  13. Granger, C. W. J. & Newbold, P., 1974. "Spurious regressions in econometrics," Journal of Econometrics, Elsevier, Elsevier, vol. 2(2), pages 111-120, July.
  14. Chaudhuri, Kausik & Daniel, Betty C., 1998. "Long-run equilibrium real exchange rates and oil prices," Economics Letters, Elsevier, Elsevier, vol. 58(2), pages 231-238, February.
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Cited by:
  1. Andreas-Ektor Lake & Constantinos Katrakilides, 2013. "The Oil Price Effects in the Greek Stock Market," International Journal of Maritime, Trade & Economic Issues (IJMTEI), International Journal of Maritime, Trade & Economic Issues (IJMTEI), International Journal of Maritime, Trade & Economic Issues (IJMTEI), vol. 0(1), pages 49-58.
  2. Kaouther Amiri & Ahlem Dakhlaoui & Besma Talibi, 2013. "Estimating Import Demand Function in Oil Exporting Countries: Panel Cointegration Approach," International Journal of Maritime, Trade & Economic Issues (IJMTEI), International Journal of Maritime, Trade & Economic Issues (IJMTEI), International Journal of Maritime, Trade & Economic Issues (IJMTEI), vol. 0(1), pages 33-48.

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