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The Oil Price and Exchange Rate Relationship Revisited: A time-varying VAR parameter approach

Author

Listed:
  • Vincent Brémond

    () (EconomiX - UPN - Université Paris Nanterre - CNRS - Centre National de la Recherche Scientifique)

  • Emmanuel Hache

    (IFPEN - IFP Energies nouvelles - IFPEN - IFP Energies nouvelles)

  • Tovonony Razafindrabe

    () (CREM - Centre de recherche en économie et management - UNICAEN - Université de Caen Normandie - NU - Normandie Université - UR1 - Université de Rennes 1 - UNIV-RENNES - Université de Rennes - CNRS - Centre National de la Recherche Scientifique)

Abstract

The aim of this paper is to study the relationship between the effective exchange rate of the dollar and the oil price dynamics from 1976 to 2013. We explore the links between financial factors (exchange rate, monetary policy, international liquidity) and the oil price volatility. Using a Bayesian time-varying parameter vector auto-regressive estimation we demonstrate that the "historical coincidence" of oil and financial crises can be explained by the specificities of the relationship between these two commodities. The results of this paper are twofold. The US Dollar effective exchange rate elasticity of crude oil prices is not constant across time and remains negative from 1989: a depreciation of the effective exchange rate of the dollar triggers an increase of crude oil prices. This paper also demonstrates the contagion of financial commodities markets development upon the global economy. The Oil Price and Exchange Rate Relationship Revisited: A time-varying VAR parameter approach (PDF Download Available). Available from: https://www.researchgate.net/publication/305501192_The_Oil_Price_and_Exchange_Rate_Relationship_Revisited_A_time-varying_VAR_parameter_approach [accessed Jan 14 2018].

Suggested Citation

  • Vincent Brémond & Emmanuel Hache & Tovonony Razafindrabe, 2016. "The Oil Price and Exchange Rate Relationship Revisited: A time-varying VAR parameter approach," Post-Print halshs-01683809, HAL.
  • Handle: RePEc:hal:journl:halshs-01683809
    Note: View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-01683809
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    as
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    Cited by:

    1. César Castro & Rebeca Jiménez-Rodríguez, 2020. "Dynamic interactions between oil price and exchange rate," PLOS ONE, Public Library of Science, vol. 15(8), pages 1-20, August.

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    More about this item

    Keywords

    exchange rate; Oil price; TVP-VAR;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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