On the Relationship between Oil and Exchange Rates of Oil-Exporting and Oil-Importing Countries: From the Great Recession Period to the COVID-19 Era

Vincenzo Candila, Denis Maximov, Alexey Mikhaylov, Nikita Moiseev, Tomonobu Senjyu and Nicole Tryndina
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Vincenzo Candila: Department of Methods and Models in Economics, Territory and Finance, Sapienza University of Rome, 00185 Rome, Italy
Denis Maximov: Department of Mathematical Methods in Economics, Plekhanov Russian University of Economics, 117997 Moscow, Russia
Nikita Moiseev: Department of Mathematical Methods in Economics, Plekhanov Russian University of Economics, 117997 Moscow, Russia
Tomonobu Senjyu: Department of Electrical and Electronics Engineering, University of the Ryukyus, Okinawa 903-0213, Japan
Nicole Tryndina: Department of Economic Theory, Plekhanov Russian University of Economics, 117997 Moscow, Russia

Energies, 2021, vol. 14, issue 23, 1-18

Abstract: This paper is dedicated to studying and modeling the interdependence between the oil returns and exchange-rate movements of oil-exporting and oil-importing countries. Globally, twelve countries/regions are investigated, representing more than 60% and 67% of all oil exports and imports. The sample period encompasses economic and natural events like the Great Recession period (2007–2009) and the COVID-19 pandemic. We use the dynamic conditional correlation mixed-data sampling (DCC-MIDAS) model, with the aim of investigating the interdependencies expressed by the long-run correlation, which is a smoother (but always daily observed) version of the (daily) time-varying correlation. Focusing on the advent of the COVID-19 pandemic in 2020, the long-run correlations of the oil-exporting countries (Saudia Arabia, Russia, Iraq, Canada, United States, United Arab Emirates, and Nigeria) and (lagged) WTI crude oil returns strongly increase. For a subset of these countries (that is, Saudia Arabia, Iraq, United States, United Arab Emirates, and Nigeria), the (lagged) correlations turn out to be positive, while for Canada and Russia they remain negative as before the advent of the pandemic. In addition, the oil-importing countries and regions under investigation (Europe, China, India, Japan, and South Korea) experience a similar pattern: before the COVID-19 pandemic, the (lagged) correlations were negative for China, India, and South Korea. After the COVID-19 pandemic, the correlations of these latter countries increased.

Keywords: correlation analysis; oil prices; oil exporters; structural breaks; currency exchange rate (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 (10)

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