Dynamic linkage between oil prices and exchange rates: new global evidence

Bwo-Nung Huang, Chi-Chuan Lee, Yu-Fang Chang and Chien-Chiang Lee ()
Additional contact information
Bwo-Nung Huang: National Chung Cheng University
Yu-Fang Chang: Takming University of Science and Technology

Empirical Economics, 2021, vol. 61, issue 2, No 7, 719-742

Abstract: Abstract This paper examines the dynamic linkage between crude oil prices and exchange rates from a global perspective. Unlike the conventional cointegration specification used in earlier works, we evaluate long- and short-run relations based on the pooled mean group approach. Taking monthly data of real oil prices and real exchange rates from the period January 1997 to July 2015, we classify 81 countries by their net oil import status (i.e., oil-importing and oil-exporting) and exchange rate arrangement systems (i.e., free-floating and managed floating), presenting results that the long-run relationship between oil prices and exchange rates depends on country-specific circumstances. For countries adopting free-floating systems, oil importers reveal a significantly negative bidirectional correlation, while oil exporters show no correlation between oil prices and exchange rates. As for managed floating systems, only exchange rates have predictive content for oil prices no matter in the cases of oil importers or exporters. Knowledge of these relationships can guide government policy development to prevent sudden and substantial shocks from crude oil price and exchange rate movements.

Keywords: Crude oil price; Exchange rate; Exchange rate systems; Pooled mean group (search for similar items in EconPapers)
JEL-codes: C33 G15 Q43 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

Downloads: (external link)
http://link.springer.com/10.1007/s00181-020-01874-8 Abstract (text/html)
Access to the full text of the articles in this series is restricted.

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: https://EconPapers.repec.org/RePEc:spr:empeco:v:61:y:2021:i:2:d:10.1007_s00181-020-01874-8

Ordering information: This journal article can be ordered from
http://www.springer. ... rics/journal/181/PS2

DOI: 10.1007/s00181-020-01874-8

Access Statistics for this article

Empirical Economics is currently edited by Robert M. Kunst, Arthur H.O. van Soest, Bertrand Candelon, Subal C. Kumbhakar and Joakim Westerlund

More articles in Empirical Economics from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().