Oil Prices and Exchange Rates: The Case of Opec

Abstract

This paper has studied the relationship between oil price and exchange rate in OPEC members. In this paper, we investigate the long-run relationship between real oil prices and real exchange rates by using monthly panel of seven countries of OPEC members from 2000:01 to 2007:12. We first test whether or not exchange rates are cointegrated with real oil prices. Stationary and cointegration tests for pooled series obviously have shown the high power of pooled tests for unit root and cointegration. It is shown that real oil prices may 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.

Keywords: real oil price, real exchange rates, OPEC

JEL Classification: C22, C23