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Impacts of Oil Price Fluctuations on Exchange Rates and Macroeconomic Variables : A Multi-Country Analysis

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  • Iwaisako, Tokuo
  • Nakata, Hayato

Abstract

This paper employed a structural vector autoregression model in a quantitative assessment of the effect of exogenous shocks related to oil price determination on countriesʼ exchange rates and outputs. Because we were interested in the effect of oil price changes on energyexporters and importers, we chose Australia, Canada, Japan, Norway, and the UK as sample countries. This model comprised of four structural shocks :（i）oil supplyshocks,（ii）global demand shocks,（iii）oil price fluctuations that are not related to supplyand demand, and（iv）pure exchange rate fluctuations that are not related to other structural shocks. Various responses to structural shocks explain the correlation structure of the currencies. Moreover, pure exchange rate shocks are the main sources of exchange rate volatility.We also examined the role of structural shocks in explaining macro variables, taking Australia and Japan as examples. We thus discovered that global demand shocks and non-fundamental oil price fluctuations have a strong impact on GDP and export growth for both countries, while pure exchange rate shocks were relativelyunimportant in explaining Japanʼs macroeconomic variables.

Suggested Citation

  • Iwaisako, Tokuo & Nakata, Hayato, 2019. "Impacts of Oil Price Fluctuations on Exchange Rates and Macroeconomic Variables : A Multi-Country Analysis," Economic Review, Hitotsubashi University, vol. 70(4), pages 289-311, October.
    • Handle: RePEc:hit:ecorev:v:70:y:2019:i:4:p:289-311
    DOI: 10.15057/30822
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    More about this item

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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