Abstract
Structural changes occurring in the crude oil market have stimulated the emergence of hypotheses suggesting that the relationship between prices of this raw material and the US dollar exchange rate can gradually become similar to that observed between oil prices and exchange rates of the currencies of the countries whose revenues from the export of this resource are a significant part of their current account balance. The purpose of this study was to determine and evaluate the time-varying dependence between oil prices and the exchange rate of the US dollar in the context of the same relationship for the Chinese, European, Japanese, Saudi, and Russian currencies. The results of our analyses implicate that a negative correlation between the variables in question grows stronger in time periods preceding global shocks and during thereof. The dominance of the USD in the crude oil market is reflected in similar characteristics of the correlations of the currencies of other countries, such as China, countries of the Euro area, or Japan. As for countries exporting crude oil, the situation varies. The results of our research suggest the lack of a stable relationships between prices of crude oil and currency exchange rates. It is also impossible to observe a long-term, unequivocal tendency of the currencies of oil exporting countries being positively correlated with oil prices. Russia was the closest to this situation. In Saudi Arabia, a positive correlation emerged during moments of crisis.
Highlights
The DCC-GARCH model was proposed by Engle [39], while Bollerslev [40] introduced the model of constant conditional correlation coefficients CCC-GARCH
A two-step procedure composed of the estimation of a dynamic conditional correlation model (DCC GARCH) was employed
The results of the performed analyses confirm that the correlation between oil prices and the USD exchange rates is highly varied over time
Summary
The relationship between the price of crude oil and the US dollar is an essential component of the modern economic system. This relationship has an impact on the profitability of many industrial sectors, such as the petroleum industry, transportation industry, chemical industry, financial sector, food industry, etc. It has an impact on the budget revenues, expenditures, and inflation in many countries. The study of this relationship is an important aspect of broader research on the transfer of market shocks in the global economy
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