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Modelling oil price and exchange rate co-movements

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  • Reboredo, Juan C.

Abstract

We examine how oil prices and exchange rates co-move using two measures of dependence: correlations and copulas and document two main findings for crude oil prices and a range of currencies: oil price–exchange rate dependence is in general weak, although it rose substantially in the aftermath of the global financial crisis; and there is no extreme market dependence between oil prices and exchange rates. These findings have important implications for risk management, monetary policies to control oil inflationary pressures or exchange rates, the dollar-pegging policies of some oil-exporting countries and fiscal policy in oil-exporting countries in general.

Suggested Citation

  • Reboredo, Juan C., 2012. "Modelling oil price and exchange rate co-movements," Journal of Policy Modeling, Elsevier, vol. 34(3), pages 419-440.
  • Handle: RePEc:eee:jpolmo:v:34:y:2012:i:3:p:419-440
    DOI: 10.1016/j.jpolmod.2011.10.005
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    More about this item

    Keywords

    Oil prices; Exchange rates; Copulas; Co-movement;
    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
    • C46 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Specific Distributions
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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