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A wavelet transformation approach to crude oil price and CZK/USD exchange rate dependence

Author

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  • Luká? Frýd

    (University of Economics, Prague)

Abstract

In this paper, we contribute to the literature on the dependency between oil price returns and CZK/USD exchange rate returns. Oil price is one of the most important determinants for an explanation of the long-term behaviour of exchange rates, especially for USD dollar. The oil shock transmission mechanism is through the exchange rate channel and so the deeply understanding of this process is essential not only for investors but also for monetary authority. We utilised wavelet transform analysis so that we can analyse the dependency in the time-frequency domain. Our analysis finds that the connection between returns time series changes in time and scales. The major implications of our findings are important for effective monetary policies aimed at controlling inflationary pressures.

Suggested Citation

  • Luká? Frýd, 2017. "A wavelet transformation approach to crude oil price and CZK/USD exchange rate dependence," Proceedings of Economics and Finance Conferences 4507429, International Institute of Social and Economic Sciences.
    • Handle: RePEc:sek:iefpro:4507429
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    References listed on IDEAS

    as
    1. Cifarelli, Giulio & Paladino, Giovanna, 2010. "Oil price dynamics and speculation: A multivariate financial approach," Energy Economics, Elsevier, vol. 32(2), pages 363-372, March.
    2. Camarero, Mariam & Tamarit, Cecilio, 2002. "Oil prices and Spanish competitiveness: A cointegrated panel analysis," Journal of Policy Modeling, Elsevier, vol. 24(6), pages 591-605, October.
    3. Gençay, Ramazan & Gençay, Ramazan & Selçuk, Faruk & Whitcher, Brandon J., 2001. "An Introduction to Wavelets and Other Filtering Methods in Finance and Economics," Elsevier Monographs, Elsevier, edition 1, number 9780122796708.
    4. Reboredo, Juan C., 2011. "How do crude oil prices co-move?: A copula approach," Energy Economics, Elsevier, vol. 33(5), pages 948-955, September.
    5. van Amano, Robert A & Norden, Simon, 1998. "Exchange Rates and Oil Prices," Review of International Economics, Wiley Blackwell, vol. 6(4), pages 683-694, November.
    6. 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.
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    More about this item

    Keywords

    wavelet; wavelet coherence; oil price; dependence;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics

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