The asymmetric relationship between the oil price and the US-Canada exchange rate

Young Cheol Jung, Anupam Das and Adian McFarlane

The Quarterly Review of Economics and Finance, 2020, vol. 76, issue C, 198-206

Abstract: Using non-linear autoregressive distributed lag models (NARDL) and Granger causality testing, this paper examines whether there are asymmetric long-run and short-run relationships between US-Canada exchange rate and the real price of oil over the period January 1982 to March 2019. In this examination, we account for macroeconomic differences across Canada and the US to arrive at three key findings. First, we find a bidirectional long-run cointegrating relationship between the real price of oil and the US-Canada exchange rate. Second, in this bidirectional relationship, the long-run asymmetry runs from the US-Canada exchange rate to the real price of oil, a finding that is statistically robust as the parameters of the NARDL models are stable with well-behaved errors. Third, the Granger causality testing indicates that the short-run asymmetry mainly runs from the US-Canada exchange rate to the real price of oil; this reinforces the long-run results.

Keywords: WTI crude oil; Canadian dollar; NARDL; Granger causality (search for similar items in EconPapers)
JEL-codes: C22 C32 C58 F31 O13 (search for similar items in EconPapers)
Date: 2020
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:quaeco:v:76:y:2020:i:c:p:198-206

DOI: 10.1016/j.qref.2019.06.003

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