Economics at your fingertips  

Causality between oil shocks and exchange rate: A Bayesian, graph-based VAR approach

Libo Yin and Xiyuan Ma

Physica A: Statistical Mechanics and its Applications, 2018, vol. 508, issue C, 434-453

Abstract: Our paper studies the casual relationship between oil and major bilateral exchange rates against US dollar via a novel Bayesian, graph-based approach. This approach is shown to be quite effective in dealing with identification in Vector Autoregression (VAR) model, in which the temporal causal structure is represented by a graph sampled by Markov Chain Monte Carlo (MCMC) method. Empirical evidence demonstrates that oil price leads the exchange market in the after-crisis period whereas vice versa before crisis, implying a potential impact from financial crisis on the causality between these two markets. We further show that in general, oil-market specific shock affects the dependence structure most, while aggregate demand shock plays a weaker role and supply shock contributes least. Specifically, these three oil shocks take effect during different periods, thus capturing some invisible information about market evolutions.

Keywords: Oil shocks; Exchange rates; Bayesian; Graph-based VAR; Causal structural relationship; Time-varying analysis (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations Track citations by RSS feed

Downloads: (external link)
Full text for ScienceDirect subscribers only. Journal offers the option of making the article available online on Science direct for a fee of $3,000

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

Access Statistics for this article

Physica A: Statistical Mechanics and its Applications is currently edited by K. A. Dawson, J. O. Indekeu, H.E. Stanley and C. Tsallis

More articles in Physica A: Statistical Mechanics and its Applications from Elsevier
Bibliographic data for series maintained by Dana Niculescu ().

Page updated 2018-11-30
Handle: RePEc:eee:phsmap:v:508:y:2018:i:c:p:434-453