The relationship between oil prices and exchange rates has been a topic of great
academic debate and research interest during the last decades. There is plenty of
empirical evidence for a long-run relationship between the oil price and US dollar
exchange rates, while it seems that causalities change over time and run in both
directions. In this light, the aim of this study was to investigate the long-run relationship
between crude oil prices and real trade-weighted US dollar exchange rate index for a
time period of 30 years (1988-2018), as well as to examine the direction of the
respective causalities, by considering a cointegration method. According to research
results, it was found that crude oil prices and real trade-weighted US dollar exchange
rate are negatively correlated, and causality runs from oil prices to the US dollar
exchange rate. It was also demonstrated that the two variables are cointegrated, thus,
they hold a long-run equilibrium relationship.
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