Can Oil Prices Forecast Exchange Rates?

65 Pages Posted: 27 Aug 2013

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: October 21, 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.

JEL Classification: F31, F37, C22, C53

Suggested Citation

Ferraro, Domenico and Rogoff, Kenneth S. and Rossi, Barbara, Can Oil Prices Forecast Exchange Rates? (October 21, 2012). CAFE Research Paper No. 13.17. Available at SSRN: https://ssrn.com/abstract=2316338 or http://dx.doi.org/10.2139/ssrn.2316338

Domenico Ferraro

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 (Contact Author)

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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