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Crude Oil Prices and the Euro-Dollar Exchange Rate: A Forecasting Exercise

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Author Info
Jesus Crespo Cuaresma ()
Andreas Breitenfellner ()

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Abstract

If oil exporters stabilize the purchasing power of their export revenues in terms of imports, exchange rate developments (and particularly, developments in the US dollar/euro exchange rate) may contain information about oil price changes. This hypothesis depends on three conditions: (a) OPEC has price setting capacity, (b) a high share of OPEC imports comes from the euro area and (c) alternatives to oil invoicing in US dollar are costly. We give evidence that using information on the US dollar/euro exchange rate (and its determinants) improves oil price forecasts significantly. We discuss possible implications that these results might suggest with regard to the stabilization of oil prices or the adjustment of global imbalances.

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Paper provided by Faculty of Economics and Statistics, University of Innsbruck in its series Working Papers with number 2008-08.

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Handle: RePEc:inn:wpaper:2008-08

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Related research
Keywords: oil price; exchange rate; forecasting; multivariate time series models.;

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Find related papers by JEL classification:
Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy
F31 - International Economics - - International Finance - - - Foreign Exchange
C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Other Model Applications

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Yousefi, Ayoub & Wirjanto, Tony S., 2004. "The empirical role of the exchange rate on the crude-oil price formation," Energy Economics, Elsevier, vol. 26(5), pages 783-799, September. [Downloadable!] (restricted)
  2. Martin G. Kocher & Ganna Pogrebna & Matthias Sutter, . "The Determinants of Managerial Decisions Under Risk," Working Papers 2008-04, Faculty of Economics and Statistics, University of Innsbruck. [Downloadable!]
  3. Jesus Crespo Cuaresma & Neil Foster & Johann Scharler, 2007. "Barriers to Technology Adoption, International R&D Spillovers and Growth," Working Papers 2007-09, Faculty of Economics and Statistics, University of Innsbruck. [Downloadable!]
  4. Paul A. Raschky & Manijeh Schwindt, . "Aid, Catastrophes and the Samaritan's Dilemma," Working Papers 2008-06, Faculty of Economics and Statistics, University of Innsbruck. [Downloadable!]
  5. Michael Hanke & Jürgen Huber & Michael Kirchler & Matthias Sutter, 2007. "The economic consequences of a Tobin tax - An experimental analysis," Working Papers 2007-18, Faculty of Economics and Statistics, University of Innsbruck. [Downloadable!]
  6. Martin G. Kocher & Todd L. Cherry & Stephan Kroll & Robert J. Netzer & Matthias Sutter, 2007. "Conditional cooperation on three continents," Working Papers 2007-02, Faculty of Economics and Statistics, University of Innsbruck. [Downloadable!]
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