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Does the value of US dollar matter with the price of oil and gold? A dynamic analysis from time–frequency space

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  • Lin, Fu-Lai
  • Chen, Yu-Fen
  • Yang, Sheng-Yung

Abstract

This paper uses wavelet analysis to examine whether the value of US dollars drives the price of oil and gold. By decomposing the pairwise relationship between oil–US dollar and gold–US dollar into short-term and long-term components, risk managers who are pursuing different decision-making horizons would be able to moderate their risk exposures according to these results. Empirical findings indicate that the pairwise relations became weaker as the time frames being observed widened, suggesting that short-term correlations were much higher after early 1990s. The Fed monetary policy is the main driver to the pairwise correlations of oil–US dollar and gold–US dollar. The dynamic interdependences also indicate that crude oil market has been dominated by the US dollar while gold leads the US dollar in the short run after early 1990s. On the other hand, we find that financial crises do accelerate interdependences between oil–US dollar and gold–US dollar, which alter the original relationship between these assets. The risk variables of TED spread and variance of S&P 500 predict the closer oil–US dollar and gold–US dollar correlations during the crisis period.

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  • Lin, Fu-Lai & Chen, Yu-Fen & Yang, Sheng-Yung, 2016. "Does the value of US dollar matter with the price of oil and gold? A dynamic analysis from time–frequency space," International Review of Economics & Finance, Elsevier, vol. 43(C), pages 59-71.
  • Handle: RePEc:eee:reveco:v:43:y:2016:i:c:p:59-71
    DOI: 10.1016/j.iref.2015.10.031
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    2. Drachal, Krzysztof, 2019. "Forecasting prices of selected metals with Bayesian data-rich models," Resources Policy, Elsevier, vol. 64(C).
    3. Funashima, Yoshito, 2017. "Time-varying leads and lags across frequencies using a continuous wavelet transform approach," Economic Modelling, Elsevier, vol. 60(C), pages 24-28.
    4. Thomas Conlon & Brian M. Lucey & Gazi Salah Uddin, 2018. "Is gold a hedge against inflation? A wavelet time-scale perspective," Review of Quantitative Finance and Accounting, Springer, vol. 51(2), pages 317-345, August.
    5. Lin, Boqiang & Su, Tong, 2020. "Does oil price have similar effects on the exchange rates of BRICS?," International Review of Financial Analysis, Elsevier, vol. 69(C).
    6. Khalfaoui, Rabeh, 2018. "Oil–gold time varying nexus: A time–frequency analysis," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 503(C), pages 86-104.
    7. Jiang, Meihui & An, Haizhong & Jia, Xiaoliang & Sun, Xiaoqi, 2017. "The influence of global benchmark oil prices on the regional oil spot market in multi-period evolution," Energy, Elsevier, vol. 118(C), pages 742-752.
    8. Lin, Fu-Lai & Yang, Sheng-Yung & Marsh, Terry & Chen, Yu-Fen, 2018. "Stock and bond return relations and stock market uncertainty: Evidence from wavelet analysis," International Review of Economics & Finance, Elsevier, vol. 55(C), pages 285-294.
    9. Qing Peng & Fenghua Wen & Xu Gong, 2021. "Time‐dependent intrinsic correlation analysis of crude oil and the US dollar based on CEEMDAN," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(1), pages 834-848, January.

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    More about this item

    Keywords

    US dollar; Crude oil; Gold; Dynamic interdependence; Wavelet analysis; Monetary policy;
    All these keywords.

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • 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
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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