What Do We Know About the Oil Price–Exchange Rate Link?—The Role of Time-Variation and Supply/Demand Dynamics

Joscha Beckmann and Robert Czudaj

Chapter Chapter 2 in Applications in Energy Finance, 2022, pp 27-54 from Springer

Abstract: Abstract This study takes into account two previously neglected issues when analyzing the relationship between oil prices and effective dollar exchange rates. We distinguish between demand and supply side dynamics and the role of time-variation in terms of in-sample and out-of-sample results. While we find robust evidence for a long-term link between the price of oil and exchange rates, we are unable to identify systematic forecasting ability in either direction. We also find that a potential link between long-run relationships and out-of-sample predictability is changing over time and discuss avenues for further research.

Keywords: Cointegration; Error correction; Oil price; Effective exchange rates; E31; F31 (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sprchp:978-3-030-92957-2_2

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DOI: 10.1007/978-3-030-92957-2_2

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