Oil Price And Exchange Rates

2009

Leili Nikbakht

83

OIL PRICES AND EXCHANGE RATES: THE CASE OF OPEC

Leili Nikbakht

Abstract
This paper has canvas the relationship in the midst of oil price and rallying enume swan in OPEC members. In this paper, we investigate the long-run relationship between factual oil prices and real exchange rates by using monthly panel of seven countries of OPEC members from 2000:01 to 2007:12. We first show whether or not exchange rates are cointegrated with real oil prices. Stationary and cointegration tests for pooled series obviously cause shown the steep power of pooled tests for unit root and cointegration. It is shown that real oil prices whitethorn have been the dominant source of real exchange rate movements. Finally, the results shown that, there is a long-run linkage between real oil prices and real exchange rates.

Nikbakht L. - Oil Prices and Exchange range: The Case of OPEC

84

Business Intelligence Journal

January

Introduction
The exchange rate is arguably the most difficult macroeconomic variable to model empirically. more papers have previously suggested that oil prices may have an important influence on exchange rates. The suggestion, however, that oil prices world power be sufficient to explain all long-run movements in real exchange rates appears to be new.



Structural time-series melt down on the determinants of real exchange rate fluctuations indicates that real shocks or permanent components play a major and significant single-valued function in explaining real exchange rate fluctuations. The potential vastness of oil prices for exchange rate movements have been noted by, McGuirk (1983), Krugman (1983a, 1983b), Golub (1983) and Rogoff (1991). Univariate and variable BeveridgeNelson decompositions by Huizinga (1987) and Baxter (1994) find that, even though real exchange rates may not follow a ergodic walk, most of their movements are due to changes in the permanent components. Lastrapes (1992) by using the Blanchard and Quah (1989) decomposition, find that much of the...If you want to get a full essay, order it on our website: Ordercustompaper.com



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