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Macro Wine in Financial Skins: The Oil-FX Interdependence

Author

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  • Enzo Weber

Abstract

This paper analyses mutual causalities between crude oil price and euro / US dollar exchange rate. Instead of focusing on long-run macroeconomic linkages like the bulk of the relevant literature, the present approach takes a financial markets perspective using daily data. The fast-running simultaneous impacts are identified through heteroscedasticity by specifying multivariate EGARCH processes for the structural variances. While for the decade after 1986 no significance is found, thereafter oil price changes cause inverse reactions of the dollar price and affect its volatility. Reversely, dollar appreciation asymmetrically increases the oil price.

Suggested Citation

  • Enzo Weber, 2008. "Macro Wine in Financial Skins: The Oil-FX Interdependence," SFB 649 Discussion Papers SFB649DP2008-048, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
  • Handle: RePEc:hum:wpaper:sfb649dp2008-048
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    File URL: http://sfb649.wiwi.hu-berlin.de/papers/pdf/SFB649DP2008-048.pdf
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    Cited by:

    1. 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.

    More about this item

    Keywords

    Crude Oil Price; Foreign Exchange; Identification;

    JEL classification:

    • 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
    • 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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