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On the impact of dollar movements on oil currencies

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  • Gabriel Gomes

Abstract

This paper investigates to which extent dollar real exchange rate movements have a nonlinear impact on the short term dynamics of the real exchange rate of oil exporting economies. Estimating a panel cointegrating model for 11 OPEC and 5 major oil exporting countries over the 1980-2014 period, we find evidence to support their currencies can be considered as oil price driven. In fact, on the long run a 10% increase in the price of oil leads to a 2.1% appreciation of their real exchange rate. To analyse how dollar movements interact with the real exchange rate of those countries in the short run, we then estimate a panel smooth transition regression model. Results show that the real exchange rate of oil exporting economies is influenced by oil price fluctuations only if the dollar appreciation is lower than 2.6%. After the dollar appreciates beyond this threshold, their currencies are rather affected by other variables.

Suggested Citation

  • Gabriel Gomes, 2016. "On the impact of dollar movements on oil currencies," EconomiX Working Papers 2016-1, University of Paris Nanterre, EconomiX.
  • Handle: RePEc:drm:wpaper:2016-1
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    More about this item

    Keywords

    Oil price; Oil currencies; Oil exporting; Non-linearities.;
    All these keywords.

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • 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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