Dynamic structural impacts of oil shocks on exchange rates: Lessons to learn

This study explores the dynamic effects of different oil shocks on real exchange rates in net oil importers and exporters. Specifically, the connectedness measures are combined with the structural vector autoregressive model. The findings show that oil supply shocks have a larger depreciating influe...

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Bibliographic Details
Published in:Journal of economic structures 2020-02, Vol.9 (20), p.1-19, Article 20
Main Authors: Ji, Qiang, Shahzad, Syed Jawad Hussain, Bouri, Elie, Suleman, Muhammad Tahir
Format: Article
Language:English
Subjects:
Business and Management
Connectedness
Economic theory
Economics
Economics and Finance
Engineering
Exchange rate
Exports
Foreign exchange rates
Oil shocks
Spillover effect
Statistics
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Summary:This study explores the dynamic effects of different oil shocks on real exchange rates in net oil importers and exporters. Specifically, the connectedness measures are combined with the structural vector autoregressive model. The findings show that oil supply shocks have a larger depreciating influence on exchange rates in oil exporters than in importers. All countries are generally more sensitive to oil-specific demand shocks, and this sensitivity can lead to a significant appreciation in real exchange rates, except in Japan and the United Kingdom. Further, the spillover effect between oil shocks and exchange rates has strengthened after the global financial crisis of 2007-08. Our findings provide useful implications for the policy-makers and market risk managers to effectively avoid exchange rate risk induced by oil shocks.
ISSN:2193-2409
2193-2409
DOI:10.1186/s40008-020-00194-5