The Dynamic Relationship between Oil Prices and Exchange Rates

Abstract

Using daily data of oil prices and exchange rates of 14 countries for the period January 1999 to November 2014, this study examines the dynamic correlation between oil prices and exchange rates by DCC-GARCH model. The results show the significant negative correlation between oil prices and exchange rates over the period. These results imply that the increase of oil price is coinciding with US dollar depreciation and vice versa.  This correlation strengthens in negative direction during financial crisis period, while it shifts to an upward trend after financial crisis period.