This paper analyses mutual causalities between crude oil price and euro / US dollar exchange rate. Instead of focusing on long-run macroeconomic linkages like the bulk of the relevant literature, the present approach takes a financial markets perspective using daily data. The fast-running simultaneous impacts are identified through heteroscedasticity by specifying multivariate EGARCH processes for the structural variances. While for the decade after 1986 no significance is found, thereafter oil price changes cause inverse reactions of the dollar price and affect its volatility. Reversely, dollar appreciation asymmetrically increases the oil price.
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Paper provided by Sonderforschungsbereich 649, Humboldt University, Berlin, Germany in its series SFB 649 Discussion Papers with number
SFB649DP2008-048.