Nonlinear Causality between Crude Oil Prices and Exchange Rates: Evidence and Forecasting

Witold Orzeszko
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Witold Orzeszko: Department of Applied Informatics and Mathematics in Economics, Faculty of Economic Sciences and Management, Nicolaus Copernicus University in Torun, ul. Gagarina 13a, 87-100 Torun, Poland

Energies, 2021, vol. 14, issue 19, 1-16

Abstract: The relationships between crude oil prices and exchange rates have always been of interest to academics and policy analysts. There are theoretical transmission channels that justify such links; however, the empirical evidence is not clear. Most of the studies on causal relationships in this area have been restricted to a linear framework, which can omit important properties of the investigated dependencies that could be exploited for forecasting purposes. Based on the nonlinear Granger causality tests, we found strong bidirectional causal relations between crude oil prices and two currency pairs: EUR/USD, GBP/USD, and weaker between crude oil prices and JPY/USD. We showed that the significance of these relations has changed in recent years. We also made an attempt to find an effective strategy to forecast crude oil prices using the investigated exchange rates as regressors and vice versa. To this aim, we applied Support Vector Regression (SVR)—the machine learning method of time series modeling and forecasting.

Keywords: crude oil prices; exchange rates; nonlinear causality; forecasting; support vector regression; machine learning (search for similar items in EconPapers)
JEL-codes: Q Q0 Q4 Q40 Q41 Q42 Q43 Q47 Q48 Q49 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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