Abstract
This paper is dedicated to studying and modeling the interdependence between the oil returns and exchange-rate movements of oil-exporting and oil-importing countries. Globally, twelve countries/regions are investigated, representing more than 60% and 67% of all oil exports and imports. The sample period encompasses economic and natural events like the Great Recession period (2007–2009) and the COVID-19 pandemic. We use the dynamic conditional correlation mixed-data sampling (DCC-MIDAS) model, with the aim of investigating the interdependencies expressed by the long-run correlation, which is a smoother (but always daily observed) version of the (daily) time-varying correlation. Focusing on the advent of the COVID-19 pandemic in 2020, the long-run correlations of the oil-exporting countries (Saudia Arabia, Russia, Iraq, Canada, United States, United Arab Emirates, and Nigeria) and (lagged) WTI crude oil returns strongly increase. For a subset of these countries (that is, Saudia Arabia, Iraq, United States, United Arab Emirates, and Nigeria), the (lagged) correlations turn out to be positive, while for Canada and Russia they remain negative as before the advent of the pandemic. In addition, the oil-importing countries and regions under investigation (Europe, China, India, Japan, and South Korea) experience a similar pattern: before the COVID-19 pandemic, the (lagged) correlations were negative for China, India, and South Korea. After the COVID-19 pandemic, the correlations of these latter countries increased.
Highlights
During the last fifteen years, many events affecting oil prices have occurred
Taking as a starting point what was found in [21], this paper aims at investigating the long-run correlation among the exchange rates of the largest oil-exporting and oil-importing countries and regions and the WestTexas Intermediate (WTI) crude oil returns, with a particular emphasis on the periods following the previously mentioned Energy Information Administration (EIA)-signaled events
We attempt to provide some economic explanations for the pattern of the correlations between the exchange rates and WTI crude oil log-returns
Summary
During the last fifteen years, many events affecting oil prices have occurred. According to the United States Energy Information Administration (EIA), there were four main economic and natural events that happened from 2007 onwards and affected crude oil prices. These events are as follows: the global financial collapse Texas Intermediate (WTI) crude oil returns by means of the logistic smooth transition autoregressive-generalised autoregressive conditional heteroskedasticity (GARCH) model, focusing on the impact of the COVID-19 pandemic. [2] analyzed the spillovers between crude oil and the United States (USA) and Chinese stock markets as well as the gold futures market, through a Markov-switching vector autoregressive model, during the pandemic Ref. [2] analyzed the spillovers between crude oil and the United States (USA) and Chinese stock markets as well as the gold futures market, through a Markov-switching vector autoregressive model, during the pandemic
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