Modelling oil price and exchange rate co-movements

We examine how oil prices and exchange rates co-move using two measures of dependence: correlations and copulas and document two main findings for crude oil prices and a range of currencies: oil price–exchange rate dependence is in general weak, although it rose substantially in the aftermath of the global financial crisis; and there is no extreme market dependence between oil prices and exchange rates. These findings have important implications for risk management, monetary policies to control oil inflationary pressures or exchange rates, the dollar-pegging policies of some oil-exporting countries and fiscal policy in oil-exporting countries in general.

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