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Dynamic analysis of the relationship between exchange rates and oil prices: a comparison between oil exporting and oil importing countries

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Listed:
  • Shiying Chen

    (Zhejiang Ocean University)

  • Bisharat Hussain Chang

    (Sukkur IBA University)

  • Hu Fu

    (Chongqing Academy of Governance)

  • ShiQi Xie

    (Chongqing Medical University)

Abstract

Addressing the interconnectedness of oil prices and foreign exchange rates poses a substantial challenge and raises significant questions within economic research. Existing studies reveal a fragmented understanding of the dynamics between these crucial variables, highlighting a need for deeper investigation. This study extends previous research by employing the time-varying parameter VAR extended joint connectedness model and using the baseline approach called the generalized connectedness approach. Our research findings indicate that exchange rates and crude oil prices exhibit pairwise and total connectedness, varying over time. Furthermore, this connectedness experiences substantial increases during severe crisis periods. We uncover that exchange rates and crude oil prices not only share a dynamic, pairwise, and total connectedness but these results are stronger for oil exporting countries. However, these methods yield inconsistent results for various countries. Moreover, there is compelling evidence that fluctuations in exchange rates and oil prices can cause bi-directional and time-dependent shocks.

Suggested Citation

  • Shiying Chen & Bisharat Hussain Chang & Hu Fu & ShiQi Xie, 2024. "Dynamic analysis of the relationship between exchange rates and oil prices: a comparison between oil exporting and oil importing countries," Palgrave Communications, Palgrave Macmillan, vol. 11(1), pages 1-12, December.
    • Handle: RePEc:pal:palcom:v:11:y:2024:i:1:d:10.1057_s41599-024-03183-2
    DOI: 10.1057/s41599-024-03183-2
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