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Macro Wine in Financial Skins: The Oil-FX Interdependence

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  • Enzo Weber

Abstract

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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File URL: http://sfb649.wiwi.hu-berlin.de/papers/pdf/SFB649DP2008-048.pdf
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Bibliographic Info

Paper provided by Sonderforschungsbereich 649, Humboldt University, Berlin, Germany in its series SFB 649 Discussion Papers with number SFB649DP2008-048.

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Length: 12 pages
Date of creation: Jul 2008
Date of revision:
Handle: RePEc:hum:wpaper:sfb649dp2008-048

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Keywords: Crude Oil Price; Foreign Exchange; Identification;

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Cited by:
  1. Marcel Fratzscher & Daniel Schneider & Ine Van Robays, 2013. "Oil Prices, Exchange Rates and Asset Prices," CESifo Working Paper Series 4264, CESifo Group Munich.

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