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

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  • Jesus Crespo Cuaresma

    ()

  • Andreas Breitenfellner

    ()

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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Bibliographic Info

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

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Length: 29
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Handle: RePEc:inn:wpaper:2008-08

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

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References

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  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.
  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.
  3. Michael Hanke & J?rgen 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.
  4. 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.
  5. Paul A. Raschky & Manijeh Schwindt, . "Aid, Catastrophes and the Samaritan's Dilemma," Working Papers 2008-06, Faculty of Economics and Statistics, University of Innsbruck.
  6. Kocher, Martin G. & Cherry, Todd & Kroll, Stephan & Netzer, Robert J. & Sutter, Matthias, 2008. "Conditional cooperation on three continents," Economics Letters, Elsevier, vol. 101(3), pages 175-178, December.
  7. Andrea M. Leiter & Harald Oberhofer & Paul A. Raschky, . "Productive disasters? Evidence from European firm level data," Working Papers 2007-25, Faculty of Economics and Statistics, University of Innsbruck.
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Cited by:
  1. Marco Lombardi & Chiara Osbat & Bernd Schnatz, 2010. "Global commodity cycles and linkages a FAVAR approach," Working Paper Series 1170, European Central Bank.
  2. Filip Novotný, 2012. "The Link Between The Brent Crude Oil Price And The Us Dollar Exchange Rate," Prague Economic Papers, University of Economics, Prague, vol. 2012(2), pages 220-232.

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