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Interdependence of oil prices and exchange rates: Evidence from copula-based GARCH model

University of Finance-Marketing, Ho Chi Minh city, Vietnam

Topical Section: Energy Policy and Economics

This paper aims to investigate the conditional dependence structure between crude oil prices and three US dollar exchange rates (China, India and South Korea) from a new perspective using a copula-GARCH approach. Various kinds of copulas both time-invariant and time-varying dependence dynamics are fitted. Over the 2008–2018 period, the findings provide evidence of significant dependence in terms of symmetric structure between the oil prices and the exchange rate returns. Further, the tail dependence and dynamic dependence between two variables add a supplement to the explanatory ability of the model. Empirical results indicate the intercorrelation between crude oil and exchange rate movements, and provide benefits in risk diversification and inflation targeting. The findings also have significant implications for risk management, monetary policies to determine the behavior of fiscal policy in oil-exporting countries.
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© 2019 the Author(s), licensee AIMS Press. This is an open access article distributed under the terms of the Creative Commons Attribution Licese (http://creativecommons.org/licenses/by/4.0)

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