Conditional dependence between oil and exchange rate returns in a developing oil-exporting economy: an investigation with copula-based TGARCH models

Arturo Lorenzo-Valdés and Antonio Ruiz-Porras

International Journal of Global Energy Issues, 2019, vol. 42, issue 1/2, 21-44

Abstract: We study the interdependence, the conditional tail dependences and the volatilities of the oil and the exchange-rate returns for the Mexican economy. We develop the analysis with four copula-based TGARCH models. The main findings show that: (1) the Clayton-TGARCH distribution seems to characterise the co-movements between the series; (2) leverage effects of the exchange rate returns are bigger than the ones of the oil returns; (3) the series show lower tail dependence; and (4) extreme downfalls in oil returns may reduce exchange-rate ones with a probability of less than 10%. The study relies on series of weekly returns for the period between 2 January 1998 and 30 September 2016.

Keywords: copulas; TGARCH models; conditional dependence; oil returns; exchange-rate returns; Mexican economy. (search for similar items in EconPapers)
Date: 2019
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