Arbeitspapier

Oil Prices, Exchange Rates and Asset Prices

This paper takes a financial market perspective in examining the relationship between oil prices, the US dollar and asset prices, and it exploits the heteroskedasticity for the identification of causality in a multifactor model. It finds a bidirectional causality between the US dollar and oil prices since the early 2000s. Moreover, both oil prices and the US dollar are significantly affected by changes in equity market returns and risk. By contrast, oil prices did not react to changes in these financial assets before 2001. The paper provides evidence that this may be explained by the increased use of oil as a financial asset over the past decade, which intensified the link between oil and other assets. The model can account well for the strong and rising negative correlation between oil prices and the US dollar since the early 2000s, with risk shocks and the financialisation process of oil prices explaining most of the strengthening of this correlation.

Language
Englisch

Bibliographic citation
Series: CESifo Working Paper ; No. 4264

Classification
Wirtschaft
International Finance: General
International Financial Markets
Subject
oil prices
asset prices
exchange rates
US dollar
identification
time-varying correlation

Event
Geistige Schöpfung
(who)
Fratzscher, Marcel
Schneider, Daniel
Robays, Ine Van
Event
Veröffentlichung
(who)
Center for Economic Studies and ifo Institute (CESifo)
(where)
Munich
(when)
2013

Handle
Last update
16.06.0006, 3:59 PM CET

Data provider

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Object type

  • Arbeitspapier

Associated

  • Fratzscher, Marcel
  • Schneider, Daniel
  • Robays, Ine Van
  • Center for Economic Studies and ifo Institute (CESifo)

Time of origin

  • 2013

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