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ON THE RELATION BETWEEN OIL PRICE AND U.S. DOLLAR: A REVIEW OF FINANCIAL POINT-OF-VIEW

Vincenzo Costa () and Angela Maddaleni ()
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Vincenzo Costa: University of Cassino and Southern Lazio, Italy
Angela Maddaleni: University “Sapienza” of Rome, Italy

Eurasian Journal of Economics and Finance, 2018, vol. 6, issue 1, 84-92

Abstract: If it studies the relationship between crude oil price and U.S. dollar, classical literature finds a positive sign for the correlation of these two variables, i.e. the oil price and the dollar grow up together or they fall together. Instead, researches which use the data of more recent years show a negative link, so that if one variable is rising, the second one is decreasing and vice versa. Besides, there are two possible directions of causality: the economic theory explains the influence of oil price towards U.S. dollar; while the financial perspective is coherent with the opposite way. This second thesis is confirmed by the empirical evidence. In this framework, the futures and other financial derivatives have changed the picture, modifying how crude oil is priced and valued by the market. In this paper, we review the literature about the above relationship, inspecting whether or not the empirical results validate the theory, under the financial point-of view, i.e. the second interpretation.

Keywords: Exchange Rates; Oil Price; Asset Price; Inflation; Granger’s Causality; Currency (search for similar items in EconPapers)
Date: 2018
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