Can Oil Prices Forecast Exchange Rates?

Domenico Ferraro, Kenneth Rogoff and Barbara Rossi

No 11-05, Working Papers from Duke University, Department of Economics

Abstract: This paper investigates whether oil price shocks have a reliable and stable out-of-sample relationship with the Canadian/U.S Dollar nominal exchange rate. Despite state-of-the-art methodologies and clean data, we find paradoxically little systematic relation between oil prices and the exchange rate, especially if one takes the monthly and quarterly frequencies into account. In contrast, the very short term relationship between oil prices and exchange rates at the daily frequency is rather robust, and holds no matter whether we use contemporaneous (realized) or lagged oil price shocks in our regression. However, the short-term out-of-sample predictive ability is ephemeral, and it mostly appears after time variation in the forecasting ability of the models has been appropriately taken into account. We show that a similar results hold for other currencies and commodity price shocks.

JEL-codes: C22 C53 F31 F37 (search for similar items in EconPapers)
Pages: 54
Date: 2011
New Economics Papers: this item is included in nep-cba, nep-ene, nep-for and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (32)

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http://ssrn.com/abstract=1798733 main text

Related works:
Working Paper: Can Oil Prices Forecast Exchange Rates? (2015)
Working Paper: Can oil prices forecast exchange rates? (2015)
Working Paper: Can Oil Prices Forecast Exchange Rates? (2012)
Working Paper: Can Oil Prices Forecast Exchange Rates? (2011)
Working Paper: Can oil prices forecast exchange rates? (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:duk:dukeec:11-05

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