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Do exchange rates respond asymmetrically to shocks in the crude oil market?

Bebonchu Atems (), Devin Kapper and Eddery Lam ()

Energy Economics, 2015, vol. 49, issue C, 227-238

Abstract: The paper argues that exchange rates respond asymmetrically to different shocks to the crude oil market. We apply Kilian's (2009) methodology to disentangle shocks to the crude oil market into distinct demand and supply shocks, and examine the response of the U.S. real and nominal trade-weighted U.S. dollar exchange rate indexes, as well as six other bilateral exchange rates to these shocks. Our analysis indicates that oil supply shocks have no significant effects on exchange rates, while global aggregate demand and oil-specific demand shocks lead to depreciations. We further show that exchange rates respond asymmetrically to shocks in the crude market depending on whether the shocks are large versus small, or positive versus negative.

Keywords: Oil price shocks; Exchange rates; Vector autoregressive (VAR) models (search for similar items in EconPapers)
JEL-codes: G15 Q43 (search for similar items in EconPapers)
Date: 2015
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DOI: 10.1016/j.eneco.2015.01.027

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Energy Economics is currently edited by R. S. J. Tol, Beng Ang, Lance Bachmeier, Perry Sadorsky, Ugur Soytas and J. P. Weyant

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