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Giving and receiving: Exploring the predictive causality between oil prices and exchange rates
Author(s) -
GomezGonzalez Jose E.,
HirsGarzon Jorge,
Uribe Jorge M.
Publication year - 2019
Publication title -
international finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.458
H-Index - 39
eISSN - 1468-2362
pISSN - 1367-0271
DOI - 10.1111/infi.12354
Subject(s) - spillover effect , economics , financialization , exchange rate , monetary economics , granger causality , causality (physics) , oil price , sample (material) , financial crisis , social connectedness , econometrics , macroeconomics , finance , chemistry , physics , chromatography , quantum mechanics , psychology , psychotherapist
We study the dynamic connectedness and predictive causality between oil prices and exchange rates. Our sample includes six important oil‐producing and six net importing countries. Our results show that for the first set of countries, oil prices are net spillover receivers from exchange rate markets. Similarly, there is evidence of bidirectional Granger causality, which is detected for longer time periods from these countries’ exchange rates to oil prices. In contrast, for the second set of countries, oil prices are net spillover transmitters, and the causality is stronger from oil prices to exchange rates, mainly in the aftermath of the Global Financial Crisis. However, even for this group of countries, there are long periods of time for which exchange‐rate markets transmit spillovers to oil markets. Overall, oil markets are net receivers of shocks during most of the sample period, thus providing evidence in favor of the oil‐financialization hypothesis.