Oil price uncertainty and real exchange rate in a global VAR framework: a note

In this study, we contribute to the literature in twofold. First, we analyse the nexus between oil price uncertainty shock and real exchange rate behavior from a global perspective using the Global Vector Autoregressive (GVAR) framework. Second, we attempt to examine the individual countries’ characteristics in the propagation of global oil price uncertainty to real exchange rate. Using a newly developed measure of oil price uncertainty, our findings confirm a statistically significant exchange rate depreciation effect on 17 of the 32 countries considered with most of them being oil exporting countries although the magnitude of the initial impact is less severe in strong European economies, Canada and China. Our results have important implications for investors and policymakers.