Can Oil Prices Forecast Exchange Rates?

60 Pages Posted: 29 Aug 2011

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: August 23, 2011

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, the authors 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 the authors use contemporaneous (realized) or lagged oil prices in their regression. However, in the latter case the predictive ability is ephemeral, mostly appearing after instabilities have been appropriately taken into account.

JEL Classification: F31, F37, C22, C53

Suggested Citation

Ferraro, Domenico and Rogoff, Kenneth S. and Rossi, Barbara, Can Oil Prices Forecast Exchange Rates? (August 23, 2011). FRB of Philadelphia Working Paper No. 11-34. Available at SSRN: https://ssrn.com/abstract=1918987 or http://dx.doi.org/10.2139/ssrn.1918987

Domenico Ferraro (Contact Author)

Independent

No Address Available

Kenneth S. Rogoff

Harvard University - Department of Economics ( email )

Littauer Center
Room 232
Cambridge, MA 02138
United States
617-495-4022 (Phone)
617-495-7730 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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

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