Can Oil Prices Forecast Exchange Rates?

64 Pages Posted: 14 Apr 2012 Last revised: 6 Mar 2023

See all articles by Domenico Ferraro

Domenico Ferraro

Independent

Kenneth Rogoff

Harvard University - Department of Economics; National Bureau of Economic Research (NBER)

Barbara Rossi

Universitat Pompeu Fabra - Centre de Recerca en Economia Internacional (CREI); Barcelona Graduate School of Economics

Date Written: April 2012

Abstract

This paper investigates whether oil prices have a reliable and stable out-of-sample relationship with the Canadian/U.S dollar nominal exchange rate. Despite state-of-the-art methodologies, we find little systematic relation between oil prices and the exchange rate at the monthly and quarterly frequencies. In contrast, the main contribution is to show the existence of a very short-term relationship at the daily frequency, which is rather robust and holds no matter whether we use contemporaneous (realized) or lagged oil prices in our regression. However, in the latter case the predictive ability is ephemeral, mostly appearing after instabilities have been appropriately taken into account

Suggested Citation

Ferraro, Domenico and Rogoff, Kenneth S. and Rossi, Barbara, Can Oil Prices Forecast Exchange Rates? (April 2012). NBER Working Paper No. w17998, Available at SSRN: https://ssrn.com/abstract=2039612

Kenneth S. Rogoff

Harvard University - Department of Economics ( email )

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National Bureau of Economic Research (NBER)

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Barbara Rossi

Universitat Pompeu Fabra - Centre de Recerca en Economia Internacional (CREI) ( email )

Ramon Trias Fargas, 25-27
Barcelona, 08005
Spain

Barcelona Graduate School of Economics ( email )

Ramon Trias Fargas, 25-27
Barcelona, Barcelona 08005
Spain