The multilateral relationship between oil and G10 currencies

Kunkler, Michael; MacDonald, Ronald

doi:10.1016/j.eneco.2018.11.026

Cited by 8 publications

(9 citation statements)

References 15 publications

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“…This result is similar to the work of Adler and Sosa (2011), Aloui et al (2013), Reboredo (2012), Reboredo et al (2014), Coudert and Mignon (2016), who all reported a strong relationship between oil prices and exchange rate volatility. Kunkler and MacDonald (2019) attempted to exclude the numéraire effect (see German et al 1995 for the numéraire effect) in evaluating the co-movements between oil prices and G-10 countries' currencies. They examined the spillover and causal interference from the oil market to those currencies.…”

Section: Literature Reviewmentioning

confidence: 99%

Financial modelling, risk management of energy instruments and the role of cryptocurrencies

et al. 2020

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This paper empirically investigates whether cryptocurrencies might have a useful role in financial modelling and risk management in the energy markets. To do so, the causal relationship between movements on the energy markets (specifically the price of crude oil) and the value of cryptocurrencies is analysed by drawing on daily data from April 2013 to April 2019. We find that shocks to the US and European crude oil indices are strongly connected to the movements of most cryptocurrencies. Applying a non-parametric statistic, Transferring Entropy (an econophysics technique measuring information flow), we find that some cryptocurrencies (XEM, DOGE, VTC, XLM, USDT, XRP) can be used for hedging and portfolio diversification. Furthermore, the results reveal that the European crude oil index is a source of shocks on the cryptocurrency market while the US oil index appears to be a receiver of shocks.

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Section: Literature Reviewmentioning

confidence: 99%

Financial modelling, risk management of energy instruments and the role of cryptocurrencies

et al. 2020

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“…The causality may not even be uni‐directional: Kilian and Zhou () find evidence that exchange rate shocks may cause oil price changes, in addition to the inverse case. Recent work by Kunkler and MacDonald () shows an underlying positive relationship between the Canadian dollar and the price of oil when accounting separately for the value of the US dollar.…”

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confidence: 99%

Leave it in the ground? Oil sands development under carbon pricing

Bošković

Leach

2020

Canadian J of Economics

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We evaluate the impact of internalizing the carbon emissions externality on new oil sands projects. Using data from recent oil sands projects and estimates of both the social costs of carbon and carbon prices consistent with meeting global climate change targets, we estimate the potential impact of action on climate change on the economic viability of oil sands investments. Our results indicate that oil sands are a marginal resource before they incur any carbon costs. Incorporating carbon costs, we find that the viability of oil sands depends on the coverage of carbon pricing across the life cycle emissions from oil sands and on the equilibrium incidence of carbon prices on producers. We show an important interaction between resource royalties and carbon charges that implies that the impact carbon pricing depends on not only the stringency and coverage of the carbon price but also its point of application of a carbon price. Finally, we explore the potential for technological change to mitigate the impacts of carbon pricing on oil sands investment viability.

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“…However, as mentioned earlier, using the US dollar as an invoicing currency in crude oil trading creates a well-known numéraire effect (Basher et al, 2012;Bahser et al, 2016;Kunkler & MacDonald, 2019), implying that the fluctuations in the US dollars are, ceteris paribus, fully offset by equal and opposite fluctuations in the US dollar price of oil. Such a numéraire effect could result in an observable inverse correlation between movements in the US dollar price of oil and movements in the US dollar.…”

Section: Why Multilateral Pricesmentioning

confidence: 97%

“…Basher et al (2012Basher et al ( , 2016 proposed that the numéraire effect will influence the responses of the US dollar to an oil price shock, although such effects eventually dissipate. Kunkler and MacDonald (2019) also stated that another consequence of the numéraire effect is an aggregation bias for the relationship between a currency and the US dollar price of oil. Therefore, the investigation of the relationship between the US dollar price of oil and the US dollar, whether in nominal terms or in real terms, could result in a misleading oil-dollar dependence.…”

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confidence: 99%

“…In this perspective, our paper is related to an emerging literature that proved the existence of aggregation bias in the relationship between the US dollar price of oil and currencies. In their seminal work, Kunkler and MacDonald (2019) constructed a multilateral price of oil to remove the numéraire effect from the US dollar price of oil. This paper differs from the literature as we employed the local Gaussian approach introduced by Tjøstheim and Hufthammer (2013), extending the research on oil-dollar linkage to local dependence structure and underscoring the existence of contagion and flight-to-quality phenomena during oil crisis periods.…”

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confidence: 99%

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Contagion or flight‐to‐quality? The linkage between oil price and the US dollar based on the local Gaussian approach

Ming

Shen

Yang

et al. 2022

Journal of Futures Markets

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The paper utilizes the multilateral prices of West Texas Intermediate futures and the US dollar to study the nature of oil-dollar linkages. The empirical findings confirm a contagion effect between these two markets in the 1990 Gulf War, while flight-to-quality phenomena from oil to the US dollar are confirmed as a common feature for the 2008 and 2014 oil crashes, implicitly emphasizing the safe-haven role of the US dollar during oil market turmoil.These results offer significant evidence for nonlinear and asymmetric relationship between the crude oil market and the US dollar market during all periods of oil crashes.

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The multilateral relationship between oil and G10 currencies

Cited by 8 publications

References 15 publications

Financial modelling, risk management of energy instruments and the role of cryptocurrencies

Financial modelling, risk management of energy instruments and the role of cryptocurrencies

Leave it in the ground? Oil sands development under carbon pricing

Contagion or flight‐to‐quality? The linkage between oil price and the US dollar based on the local Gaussian approach

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