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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

    as
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    Citations

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    Cited by:

    1. Stephan Barisitz & Andreas Breitenfellner, 2017. "How do resource-driven economies cope with the oil price slump? A comparative survey of ten major oil-exporting countries," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue 1, pages 33-53.
    2. Thai-Ha LE & Youngho CHANG, 2011. "The Impact of Oil Price Fluctuations on Stock Markets in Developed and Emerging Economies," Economic Growth Centre Working Paper Series 1103, Nanyang Technological University, School of Social Sciences, Economic Growth Centre.
    3. Le, Thai-Ha & Chang, Youngho, 2011. "Dynamic relationships between the price of oil, gold and financial variables in Japan: a bounds testing approach," MPRA Paper 33030, University Library of Munich, Germany.
    4. Marcel Fratzscher & Daniel Schneider & Ine Van Robays, 2013. "Oil Prices, Exchange Rates and Asset Prices," Discussion Papers of DIW Berlin 1302, DIW Berlin, German Institute for Economic Research.
    5. Thai-Ha LE & Youngho CHANG, 2011. "Dynamics Between Strategic Commodities and Financial Variables," Economic Growth Centre Working Paper Series 1104, Nanyang Technological University, School of Social Sciences, Economic Growth Centre.
    6. Laourari, Imène & Gasmi, Farid, 2015. "The dynamics of the real purchasing power of Algeria's oil revenues," MPRA Paper 77612, University Library of Munich, Germany.
    7. repec:eee:riibaf:v:42:y:2017:i:c:p:304-311 is not listed on IDEAS
    8. Ledenyov, Dimitri O. & Ledenyov, Viktor O., 2013. "Some thoughts on accurate characterization of stock market indexes trends in conditions of nonlinear capital flows during electronic trading at stock exchanges in global capital markets," MPRA Paper 49921, University Library of Munich, Germany.
    9. Oteng-Abayie, Eric Fosu & Ayimbila, Prosper Awuni & Eshun, Maame Esi, 2016. "Macroeconomic determinants of crude oil demand in Ghana," MPRA Paper 73556, University Library of Munich, Germany.
    10. Alban Kitous & Bert Saveyn & Kimon Keramidas & Toon Vandyck & Luis Rey Los Santos & Krzysztof Wojtowicz, 2016. "Impact of low oil prices on oil exporting countries," JRC Working Papers JRC101562, Joint Research Centre (Seville site).
    11. Jan Hošek & Luboš Komárek & Martin Motl, 2011. "Měnová politika a cena ropy
      [Monetary Policy and Price of Oil]
      ," Politická ekonomie, University of Economics, Prague, vol. 2011(1), pages 22-46.
    12. repec:eme:cfripp:cfri-06-2016-0066 is not listed on IDEAS

    More about this item

    Keywords

    oil price; exchange rate; forecasting; multivariate time series models;

    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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