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Crude Oil Prices and the USD/EUR Exchange Rate

Author

Listed:
  • Andreas Breitenfellner

    (Oesterreichische Nationalbank)

  • Jesus Crespo Cuaresma

    (Oesterreichische Nationalbank)

Abstract

This paper investigates the impact of changes in the U.S. dollar/euro exchange rate on crude oil prices. The negative correlation of these two variables is ascribed to five possible channels: on the supply side, the purchasing power of oil export revenues and on the demand side, local prices in non-U.S. dollar regions, investments in crude oil-related asset markets, the monetary policy regime in oil-exporting countries and the efficiency of the currency market. We give evidence that using information on the U.S. dollar/euro exchange rate (and its determinants) significantly improves oil price forecasts. We discuss the possible implications these results might suggest with regard to the stabilization of oil prices or the adjustment of global imbalances.

Suggested Citation

  • Andreas Breitenfellner & Jesus Crespo Cuaresma, 2008. "Crude Oil Prices and the USD/EUR Exchange Rate," Monetary Policy & the Economy, Oesterreichische Nationalbank (Austrian Central Bank), issue 4.
    • Handle: RePEc:onb:oenbmp:y:2008:i:4:b:6
    as

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    References listed on IDEAS

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    More about this item

    Keywords

    oil price; exchange rate; forecasting; multivariate time series models;
    All these keywords.

    JEL classification:

    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • 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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