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

Author

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  • Arturo Lorenzo-Valdés
  • Antonio Ruíz-Porras

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.

Suggested Citation

  • Arturo Lorenzo-Valdés & Antonio Ruíz-Porras, 2019. "Conditional dependence between oil and exchange rate returns in a developing oil-exporting economy: an investigation with copula-based TGARCH models," International Journal of Global Energy Issues, Inderscience Enterprises Ltd, vol. 42(1/2), pages 21-44.
    • Handle: RePEc:ids:ijgeni:v:42:y:2019:i:1/2:p:21-44
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