US dollar exchange rate and crude oil price: A common driver explanation.

摘要

This study analyzes the relationship between dollar exchange rate and crude oil price. Unlike previous literature which established a bilateral causal relationship between the two prices, this paper proposes that gold price is likely to be a common driver of the two prices and therefore, the bilateral relationship is a part of a triangular system of gold price, dollar exchange rate and crude oil price. The results show that while in the short run gold price movement does not Granger cause the movement of the dollar exchange rate and crude oil price, it is the Granger causality between the two prices in the long run. Causality is also identified from dollar exchange rate to crude oil price in both short run and long run. But crude oil price is much less influential in its bilateral relationship with dollar exchange rate. As a result, a triangular system of gold price, dollar exchange rate and crude oil price is established. Dollar exchange rate not only has direct impacts on crude oil price, but also functions as an intermediary vehicle through which gold price movement indirectly affects crude oil price. However, the relationship between dollar exchange rate and crude oil price is unstable with multiple structural breaks over the sample period. This partially explains why previous studies have mixed results.