Currency Commodities and Causality: Some High-Frequency Evidence

Rashad Ahmed

MPRA Paper from University Library of Munich, Germany

Abstract: I investigate the link between economic fundamentals and exchange rate adjustment to commodity price fluctuations. I overcome the traditional issue of simultaneity by exploiting the September 14, 2019 drone attack on two Saudi Arabian refineries as a natural experiment. This unanticipated event caused the largest 1-day global crude oil price spike in over a decade. Using high-frequency exchange rate data for 30 countries, I measure each currency’s return around the event window, and link currency return heterogeneity to country-level economic and monetary fundamentals. Crude export and import intensities were associated with appreciation (depreciation). In addition, countries with current account surpluses, as opposed to deficits, and greater international reserves saw more currency appreciation, thereby buffering the depreciating effects on crude oil importers. Countries with higher policy interest rates, consisting of mostly Emerging Market economies, experienced greater depreciation conditional on crude oil export/import exposure.

Keywords: Commodity; exchange rates; oil price; terms of trade (search for similar items in EconPapers)
JEL-codes: E44 F3 F31 Q43 (search for similar items in EconPapers)
Date: 2019-10-10
New Economics Papers: this item is included in nep-ene, nep-mac and nep-opm
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https://mpra.ub.uni-muenchen.de/96855/1/MPRA_paper_96855.pdf original version (application/pdf)
https://mpra.ub.uni-muenchen.de/96985/1/MPRA_paper_96855.pdf revised version (application/pdf)
https://mpra.ub.uni-muenchen.de/98317/1/MPRA_paper_96855.pdf revised version (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:96855

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