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Crude Oil Prices and the USD/EUR Exchange Rate

Andreas Breitenfellner () and Jesus Crespo Cuaresma ()

Monetary Policy & the Economy, 2008, issue 4

Abstract: This paper investigates the impact of changes in the U.S. dollar/euro exchange rate on crude oil prices. The negative correlation of these two variables is ascribed to five possible channels: on the supply side, the purchasing power of oil export revenues and on the demand side, local prices in non-U.S. dollar regions, investments in crude oil-related asset markets, the monetary policy regime in oil-exporting countries and the efficiency of the currency market. We give evidence that using information on the U.S. dollar/euro exchange rate (and its determinants) significantly improves oil price forecasts. We discuss the possible implications these results might suggest with regard to the stabilization of oil prices or the adjustment of global imbalances.

Keywords: oil price; exchange rate; forecasting; multivariate time series models (search for similar items in EconPapers)
JEL-codes: C53 F31 Q43 (search for similar items in EconPapers)
Date: 2008
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