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On the impact of dollar movements on oil currencies

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  • Gabriel Gomes

Abstract

This paper investigates to which extent dollar real exchange rate fluctuations explain the unexpected divergent movement between the real exchange rate of oil exporting countries and the price of oil in certain periods. Estimating a panel cointegrating model for 11 OPEC and 5 major oil exporting countries over the 1980-2014 period, we find evidence to support they have oil currencies in the long term. In fact, a 10% increase in the price of oil leads to a 2.1% appreciation of their real exchange rate. To analyse how swings on the dollar exchange rate affect the co-movement between the two variables in the short run, we rely on a non-linear approach and estimate a panel smooth transition regression model. Results show that, in the short term, oil currencies move in concert with the price of oil only if the dollar appreciation is lower than 2.6%. After the dollar appreciates beyond this threshold, the real exchange rate of oil exporting economies is rather negatively affected by the price of oil.

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  • Gabriel Gomes, 2016. "On the impact of dollar movements on oil currencies," Working Papers 2016-11, CEPII research center.
    • Handle: RePEc:cii:cepidt:2016-11
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    More about this item

    Keywords

    Oil Price; Oil Currencies; Non-linearities;
    All these keywords.

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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