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The Effect of Oil Prices on Floating Exchange Rates

Eshak, Maha LU (2018) NEKN02 20181
Department of Economics
Abstract
This thesis contributes to the existing literature by examining the effect of oil prices on floating exchange rates of oil dependent countries. I conduct empirical tests on monthly data of 32 currencies over a timeframe of 15 years from 2003 to 2017 and 13 currencies over a timeframe of 25 years from 1993 to 2017. The analysis, therefore, includes a large sample that has the drawback of a shorter sample, and a longer sample with fewer currencies which has not been the focus of previous research. Data is estimated using the VECM as some variables are co-integrated.
Empirical results show that in the shorter sample, exchange rates are affected by the price of oil a third of the sample, while the short-term interest rate affects exchange... (More)
This thesis contributes to the existing literature by examining the effect of oil prices on floating exchange rates of oil dependent countries. I conduct empirical tests on monthly data of 32 currencies over a timeframe of 15 years from 2003 to 2017 and 13 currencies over a timeframe of 25 years from 1993 to 2017. The analysis, therefore, includes a large sample that has the drawback of a shorter sample, and a longer sample with fewer currencies which has not been the focus of previous research. Data is estimated using the VECM as some variables are co-integrated.
Empirical results show that in the shorter sample, exchange rates are affected by the price of oil a third of the sample, while the short-term interest rate affects exchange rates in 37.5% of the sample. In the long-run, there is evidence of a relationship between oil prices and exchange rates in only 10% of the sample. In the longer sample, results indicate that oil prices have a direct effect on exchange rates in more than 50% of the sample in the short-run, while interest rates have no effect. And in the long-run, only 15% of the models show a long-run relationship with the price of oil. (Less)
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author
Eshak, Maha LU
supervisor
organization
course
NEKN02 20181
year
type
H1 - Master's Degree (One Year)
subject
keywords
VECM, VAR, oil prices, exchange rates, oil dependent countries, short-run causality, long-run causality, Granger, floating currencies, co-integration, ADF
language
English
id
8950243
date added to LUP
2018-07-02 15:39:51
date last changed
2018-07-02 15:39:51
@misc{8950243,
  abstract     = {This thesis contributes to the existing literature by examining the effect of oil prices on floating exchange rates of oil dependent countries. I conduct empirical tests on monthly data of 32 currencies over a timeframe of 15 years from 2003 to 2017 and 13 currencies over a timeframe of 25 years from 1993 to 2017. The analysis, therefore, includes a large sample that has the drawback of a shorter sample, and a longer sample with fewer currencies which has not been the focus of previous research. Data is estimated using the VECM as some variables are co-integrated. 
Empirical results show that in the shorter sample, exchange rates are affected by the price of oil a third of the sample, while the short-term interest rate affects exchange rates in 37.5% of the sample. In the long-run, there is evidence of a relationship between oil prices and exchange rates in only 10% of the sample. In the longer sample, results indicate that oil prices have a direct effect on exchange rates in more than 50% of the sample in the short-run, while interest rates have no effect. And in the long-run, only 15% of the models show a long-run relationship with the price of oil.},
  author       = {Eshak, Maha},
  keyword      = {VECM,VAR,oil prices,exchange rates,oil dependent countries,short-run causality,long-run causality,Granger,floating currencies,co-integration,ADF},
  language     = {eng},
  note         = {Student Paper},
  title        = {The Effect of Oil Prices on Floating Exchange Rates},
  year         = {2018},
}