A comparative analysis of the dynamic relationship between oil prices and exchange rates

Ibrahim Turhan, Ahmet Sensoy and Erk Hacihasanoglu

Journal of International Financial Markets, Institutions and Money, 2014, vol. 32, issue C, 397-414

Abstract: This paper applies cDCC model to compare the dynamic correlations between oil prices and exchange rates of G20 members. The significant shifts in the correlations are then endogenously detected. For each pair of oil price-exchange rate, empirical evidence confirms of a strengthening negative correlation in the last decade. Methodology suggests only two events; US’ invasion of Iraq in 2003 and the 2008 global financial crisis, associating shifts of correlations to stronger negative level. While the first event has a shifting effect on mainly developed members, the latter affects them all. The new relationship provides benefits in risk diversification and inflation targeting.

Keywords: Exchange rate; Crude oil; G20; Dynamic conditional correlation; Penalized contrast function (search for similar items in EconPapers)
JEL-codes: C58 C61 E44 F31 G01 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (64)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:intfin:v:32:y:2014:i:c:p:397-414

DOI: 10.1016/j.intfin.2014.07.003

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