Contagion or flight‐to‐quality? The linkage between oil price and the US dollar based on the local Gaussian approach

Lei Ming, Yao Shen, Shenggang Yang and Minyi Dong

Journal of Futures Markets, 2022, vol. 42, issue 4, 722-750

Abstract: The paper utilizes the multilateral prices of West Texas Intermediate futures and the US dollar to study the nature of oil‐dollar linkages. The empirical findings confirm a contagion effect between these two markets in the 1990 Gulf War, while flight‐to‐quality phenomena from oil to the US dollar are confirmed as a common feature for the 2008 and 2014 oil crashes, implicitly emphasizing the safe‐haven role of the US dollar during oil market turmoil. These results offer significant evidence for nonlinear and asymmetric relationship between the crude oil market and the US dollar market during all periods of oil crashes.

Date: 2022
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