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Oil prices and the euro exchange rate

Author

Listed:
  • Kyriaki G. Louka

    (Central Bank of Cyprus)

  • Nektarios A. Michail

    (Central Bank of Cyprus
    Cyprus University of Technology)

Abstract

We use cointegration-based techniques to investigate the relationship between oil prices and the euro effective exchange rate taking also into account the influence of interest rates and stock prices. We find that higher oil prices cause a depreciation in the euro exchange rate (either nominal or real) in the short run. This suggests that during episodes of higher energy prices, the euro area consumer is faced with additional price pressures, as a depreciated euro causes import prices to further rise. Our study also indicates that as stock prices rise in the short and long term, the euro appreciates, while higher oil prices will likely result in overall higher policy rates and lower stock prices.

Suggested Citation

  • Kyriaki G. Louka & Nektarios A. Michail, 2024. "Oil prices and the euro exchange rate," International Economics and Economic Policy, Springer, vol. 21(4), pages 969-983, October.
    • Handle: RePEc:kap:iecepo:v:21:y:2024:i:4:d:10.1007_s10368-024-00622-y
    DOI: 10.1007/s10368-024-00622-y
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    References listed on IDEAS

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    More about this item

    Keywords

    Euro effective exchange rate; Oil prices; Euribor; Stock prices;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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