Heterogeneity dependence between oil prices and exchange rate: Evidence from a parametric test of Granger causality in quantiles

Yong Jiang, Yi-Shuai Ren, Seema Narayan (), Chao-Qun Ma and Xiao-Guang Yang

The North American Journal of Economics and Finance, 2022, vol. 62, issue C

Abstract: This paper re-examines the nexus between crude oil price and exchange rate by investigating their heterogeneity dependence structure within the framework of Granger causality in quantiles for a sample of developed and emerging economies (namely UK, Canada, Brazil, Russia, Mexico, Norway, India, Japan, South Africa, South Korea and European Union (EU)). The results indicate no distinct causality between the crude oil price changes and the real exchange rate returns for all countries besides Russia at the median of the conditional distribution. Besides, the crude oil price changes influence the exchange rate returns in all countries, except Norway and EU, particularly around the tails of the conditional distributions of exchange rate returns. This suggests that the oil price changes influence the real exchange rate returns when the real exchange rate returns are either in extreme appreciation or depreciation. Moreover, the crude oil price movement can be explained by the exchange rate returns for most oil importers only when the crude oil market is bearish or bullish. By contrast, the real exchange rate can permanently affect the crude oil price for most oil-importing countries irrespective of the crude oil market's state. Finally, our findings provide an essential reference for managing the extreme risk dependence between the exchange rate market and the crude oil market.

Keywords: Heterogeneity dependence; Oil price; Exchange rate; Granger causality in quantiles (search for similar items in EconPapers)
JEL-codes: C22 E44 G12 Q43 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:62:y:2022:i:c:s1062940822000638

DOI: 10.1016/j.najef.2022.101711

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