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Oil Prices and the Rise and Fall of the U.S. Real Exchange Rate

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Author Info
Robert A. Amano (Bank of Canada)
Simon van Norden

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Abstract

We examine whether a link exists between oil price shocks and the U.S. real effective exchange rate. The results show that the two variables appear to be cointegrated and that causality runs from oil prices to the exchange rate and not vice versa. The single-equation error-correction model linking these two variables is stable and captures much of the in- and out-of-sample movements in the exchange rate in dynamic simulations. Finally, tests we present show that the error-correction model has signficant post-sample predictive ability for both the size and sign of changes in the real effective exchange rate. The results suggest that oil prices may have been the dominant source of persistent real exchange rate shocks over the post-Bretton Woods periods and that energy prices may have important implications for future work on exchange rate behaviour.

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Publisher Info
Paper provided by EconWPA in its series International Finance with number 9502001.

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Length: 29 pages
Date of creation: 08 Feb 1995
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Handle: RePEc:wpa:wuwpif:9502001

Note: 29 pages, Postscript, includes tables. File compressed in a single Info-zip archive, then uuencoded.
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Find related papers by JEL classification:
F3 - International Economics - - International Finance
F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance

References listed on IDEAS
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.:

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Full references

Cited by:
(explanations, 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. Daniel Racette & Jacques Raynauld & Christian Sigouin, 1995. "An Up-to-Date and Improved BVAR Model of the Canadian Economy," Macroeconomics 9503002, EconWPA. [Downloadable!]
    Other versions:
  2. Alessandro Lanza & Matteo Manera & Margherita Grasso & Massimo Giovannini, 2003. "Long-run Models of Oil Stock Prices," Working Papers 2003.96, Fondazione Eni Enrico Mattei. [Downloadable!]
  3. Nick Chamie & Alain DeSerres & Rene Lalonde, 1994. "Optimum Currency Areas and Shock Asymmetry A Comparison of Europe and the United States," International Finance 9406001, EconWPA, revised 23 Jun 1994. [Downloadable!]
  4. Barry Cozier & Greg Tkacz, 1994. "The Term Structure and Real Activity in Canada," Macroeconomics 9406001, EconWPA, revised 23 Jun 1994. [Downloadable!]
    Other versions:
  5. Mariam Camarero & Cecilio Tamarit, . "A panel cointegration approach to the estimation of the peseta real exchange rate," Working Papers on International Economics and Finance 01-08, FEDEA. [Downloadable!]
  6. Francisco Maeso Fernandez & Bernd Schnatz & Chiara Osbat, 2001. "Determinants of the Euro real effective exchange rate: a BEER/PEER approach," Working Paper Series 085, European Central Bank. [Downloadable!]
    Other versions:
  7. Rebeca Jiménez-Rodríguez & Marcelo Sánchez, 2005. "Oil price shocks and real GDP growth: empirical evidence for some OECD countries," Applied Economics, Taylor and Francis Journals, vol. 37(2), pages 201-228, February. [Downloadable!] (restricted)
  8. Christopher Ragan, 1995. "Deriving Agents' Inflation Forecasts from the Term Structure of Interest Rates," Macroeconomics 9502003, EconWPA. [Downloadable!]
    Other versions:
  9. Amano, Robert & Coletti , Don & Murchison , Stephen, 2000. "Empirical Estimation and the Quarterly Projection Model: An Example Focusing on the External Sector," Working Paper Series 104, Sveriges Riksbank (Central Bank of Sweden). [Downloadable!]
  10. Mario Lefebvre, 1995. "Les provinces canadiennes et la convergence : une evaluation empirique," Urban/Regional 9502001, EconWPA. [Downloadable!]
  11. Engert, Walter & Hendry, Scott, 1998. "Forecasting Inflation with the M1-VECM: Part Two," Working Papers 98-6, Bank of Canada. [Downloadable!]
  12. Bernd Schnatz & Focco Vijsellaar & Chiara Osbat, 2004. "Productivity and the Euro-Dollar exchange rate," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 140(1), pages 1-30, March. [Downloadable!] (restricted)
  13. Rebeca Jiménez-Rodríguez & Marcelo Sánchez, 2004. "Oil price shocks and real GDP growth: empirical evidence for some OECD countries," Working Paper Series 362, European Central Bank. [Downloadable!]
  14. Mariam Camarero & Javier Ordóñez & Cecilio Tamarit, 2002. "The Euro-Dollar exchange rate: Is it fundamental?," European Economy Group Working Papers 16, European Economy Group. [Downloadable!]
    Other versions:
  15. Nick Chamie (Bank of Canada), & Alain DeSerres (Bank of Canada), & Rene Lalonde (Bank of Canada), . "Optimum Currency Areas and Shock Asymmetry: A Comparison of Europe and the United States," Working Papers 94-1, Bank of Canada. [Downloadable!]
  16. Juan Carlos Cuestas & Javier Ordoñez & Mariam Camarero, 2007. "The Role Of Commodity Terms Of Trade In Determining The Real Exchange Rates Of Mediterranean Countries," Working Papers. Serie AD 2007-15, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie). [Downloadable!]
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