CEPII, Recherche et Expertise sur l'economie mondiale
On the impact of dollar movements on oil currencies


Gabriel Gomes

 Highlights :
  • We find evidence to support the existence of oil currencies on the long term.
  • We show that dollar movements have a nonlinear impact on the relationship between the real price of oil and the real exchange rate of oil exporting economies.
  • In the short term, oil currencies exist only if the dollar appreciation is lower than 2.6%.

 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.

 Keywords : Oil Price | Oil Currencies | Non-linearities

 JEL : C33, F31, Q43
CEPII Working Paper
N°2016-11, May 2016

 Domaines d'expertise
Monnaie & Finance
Environnement & Ressources Naturelles

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