Chapter 6 Oil Prices and Exchange Rates: Some New Evidence Using Linear and Nonlinear Models

Mohamed El Hedi Arouri and Fredj Jawadi

A chapter in Nonlinear Modeling of Economic and Financial Time-Series, 2010, pp 121-141 from Emerald Group Publishing Limited

Abstract: Purpose – The purpose of this chapter is to investigate the linear and nonlinear short- and long-run relationships between the real price of oil and the US real effective exchange rate. Methodology/approach – We use recent linear and nonlinear econometric techniques over the period 1973–2009. Findings – Our main findings are that (i) there is significant evidence that both variables contain a unit root; (ii) the oil price and the US exchange rate are strongly linked in the short run; and finally (iii) there are some signs of nonlinearity in the oil–exchange rate relationship. Originality – Using recent econometric techniques, we show that exchange rates are not a fundamental determinant of oil prices but exchange rate changes help to better forecast oil prices in the short run.

Keywords: oil; price (search for similar items in EconPapers)
Date: 2010
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Persistent link: https://EconPapers.repec.org/RePEc:eme:isetez:s1571-0386(2010)0000020011

DOI: 10.1108/S1571-0386(2010)0000020011

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