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What Do We Know About the Oil Price–Exchange Rate Link?—The Role of Time-Variation and Supply/Demand Dynamics

In: Applications in Energy Finance

Author

Listed:
  • Joscha Beckmann

    (FernUniversität Hagen
    Kiel Institute for the World Economy)

  • Robert Czudaj

    (Ludwig-Maximilians-University Munich
    Chemnitz University of Technology)

Abstract

This study takes into account two previously neglected issues when analyzing the relationship between oil prices and effective dollar exchange rates. We distinguish between demand and supply side dynamics and the role of time-variation in terms of in-sample and out-of-sample results. While we find robust evidence for a long-term link between the price of oil and exchange rates, we are unable to identify systematic forecasting ability in either direction. We also find that a potential link between long-run relationships and out-of-sample predictability is changing over time and discuss avenues for further research.

Suggested Citation

  • Joscha Beckmann & Robert Czudaj, 2022. "What Do We Know About the Oil Price–Exchange Rate Link?—The Role of Time-Variation and Supply/Demand Dynamics," Springer Books, in: Christos Floros & Ioannis Chatziantoniou (ed.), Applications in Energy Finance, chapter 0, pages 27-54, Springer.
    • Handle: RePEc:spr:sprchp:978-3-030-92957-2_2
    DOI: 10.1007/978-3-030-92957-2_2
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