IDEAS home Printed from https://ideas.repec.org/a/wly/ijfiec/v29y2024i2p1301-1317.html
   My bibliography  Save this article

The effect of the US dollar exchange rate on oil prices: An oil financialization perspective

Author

Listed:
  • Panpan Wang
  • Xiaoxing Liu
  • Tsungwu Ho
  • Yishi Li

Abstract

This study investigates the regime‐specific relationship between the USD exchange rate and oil prices. We embed the threshold variables of structural breaks and oil financialization into the VAR model of the dollar–oil relationship. Using daily data from 1983 to 2022, we find that a marked structural change in the dollar–oil relation exists in 2001 and that deepening oil financialization drives the structural change, making the portfolio effect the dominant effect of the dollar on oil prices. After 2001, the dollar negatively affects oil prices in both the long and short run. Furthermore, our threshold regression based on the investor self‐adaptive expectation model shows that investor expectations significantly affect the dollar–oil relationship under oil financialization. A sharp increase in USD exchange rate volatility would strengthen investors' unilateral expectation of the trend of the USD exchange rate, which further enhances the portfolio effect, resulting in an even stronger negative effect of the dollar on oil prices.

Suggested Citation

  • Panpan Wang & Xiaoxing Liu & Tsungwu Ho & Yishi Li, 2024. "The effect of the US dollar exchange rate on oil prices: An oil financialization perspective," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 29(2), pages 1301-1317, April.
    • Handle: RePEc:wly:ijfiec:v:29:y:2024:i:2:p:1301-1317
    DOI: 10.1002/ijfe.2736
    as

    Download full text from publisher

    File URL: https://doi.org/10.1002/ijfe.2736
    Download Restriction: no
    File URL: https://libkey.io/10.1002/ijfe.2736?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wly:ijfiec:v:29:y:2024:i:2:p:1301-1317. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://www.interscience.wiley.com/jpages/1076-9307/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.