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The Links between the Price of Oil and the Value of US Dollar


  • Yi Zhang

    (Suffolk University, Boston, USA)


Using monthly data, this paper studies the cointegration between the real price of oil and the real effective exchange rate of US dollar allowing for structural breaks. Contrary to the conclusion from previous literature, this paper finds that the cointegration between the oil price and the value of US dollar does not significantly exist unless the effects of two structural breaks in the past, November 1986 and February 2005, are controlled for.

Suggested Citation

  • Yi Zhang, 2013. "The Links between the Price of Oil and the Value of US Dollar," International Journal of Energy Economics and Policy, Econjournals, vol. 3(4), pages 341-351.
  • Handle: RePEc:eco:journ2:2013-04-19

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    References listed on IDEAS

    1. 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.
    2. Gregory, Allan W. & Hansen, Bruce E., 1996. "Residual-based tests for cointegration in models with regime shifts," Journal of Econometrics, Elsevier, vol. 70(1), pages 99-126, January.
    3. Benassy-Quere, Agnes & Mignon, Valerie & Penot, Alexis, 2007. "China and the relationship between the oil price and the dollar," Energy Policy, Elsevier, vol. 35(11), pages 5795-5805, November.
    4. Engle, Robert & Granger, Clive, 2015. "Co-integration and error correction: Representation, estimation, and testing," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 39(3), pages 106-135.
    5. Domenico Ferraro & Ken Rogoff & Barbara Rossi, 2011. "Can Oil Prices Forecast Exchange Rates?," Working Papers 11-05, Duke University, Department of Economics.
    6. Lizardo, Radhamés A. & Mollick, André V., 2010. "Oil price fluctuations and U.S. dollar exchange rates," Energy Economics, Elsevier, vol. 32(2), pages 399-408, March.
    7. Chaudhuri, Kausik & Daniel, Betty C., 1998. "Long-run equilibrium real exchange rates and oil prices," Economics Letters, Elsevier, vol. 58(2), pages 231-238, February.
    8. Dayong Zhang & David Dickinson & Marco R. Barassi, "undated". "Structural Breaks, Cointegration and the B Share Discount in Chinese Stock Market," EcoMod2006 272100108, EcoMod.
    9. Narayan, Paresh Kumar & Narayan, Seema & Prasad, Arti, 2008. "Understanding the oil price-exchange rate nexus for the Fiji islands," Energy Economics, Elsevier, vol. 30(5), pages 2686-2696, September.
    10. Amano, R. A. & van Norden, S., 1998. "Oil prices and the rise and fall of the US real exchange rate," Journal of International Money and Finance, Elsevier, vol. 17(2), pages 299-316, April.
    11. Gregory, Allan W. & Hansen, Bruce E., 1996. "Residual-based tests for cointegration in models with regime shifts," Journal of Econometrics, Elsevier, vol. 70(1), pages 99-126, January.
    12. Zhang, Yue-Jun & Fan, Ying & Tsai, Hsien-Tang & Wei, Yi-Ming, 2008. "Spillover effect of US dollar exchange rate on oil prices," Journal of Policy Modeling, Elsevier, vol. 30(6), pages 973-991.
    13. 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.
    14. Chen, Shiu-Sheng & Chen, Hung-Chyn, 2007. "Oil prices and real exchange rates," Energy Economics, Elsevier, vol. 29(3), pages 390-404, May.
    15. Huang, Ying & Guo, Feng, 2007. "The role of oil price shocks on China's real exchange rate," China Economic Review, Elsevier, vol. 18(4), pages 403-416.
    16. Sadorsky, Perry, 2000. "The empirical relationship between energy futures prices and exchange rates," Energy Economics, Elsevier, vol. 22(2), pages 253-266, April.
    17. Golub, Stephen S, 1983. "Oil Prices and Exchange Rates," Economic Journal, Royal Economic Society, vol. 93(371), pages 576-593, September.
    18. Jen-Eem Chen & Chin-Yu Lee & Lim-Thye Goh, 2013. "Exchange rate and oil price: asymmetric adjustment," Applied Economics Letters, Taylor & Francis Journals, vol. 20(10), pages 987-990, July.
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    Cited by:

    1. repec:eee:intfin:v:51:y:2017:i:c:p:133-141 is not listed on IDEAS
    2. repec:jfr:rwe111:v:7:y:2016:i:2:p:34-43 is not listed on IDEAS

    More about this item


    Oil price; Exchange rate; Cointegration;

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy


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