Kunkler, M. and MacDonald, R. (2019) The multilateral relationship between oil and G10 currencies. Energy Economics, 78, pp. 444-453. (doi: 10.1016/j.eneco.2018.11.026)
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Abstract
The relationship between oil and currencies is expected to be multilateral in nature. However, the use of the US dollar price of oil to measure this relationship can suffer from aggregation bias, which is caused by the well-known numéraire effect: the quotation of oil in US dollars. In this paper, we remove the numéraire effect from the US dollar price of oil by creating a global (multilateral) price of oil, which is quoted relative to multiple currencies. This allows us to estimate an unbiased multilateral relationship between oil and G10 currencies. We find that the global price of oil moves multilaterally with a group of “oil” currencies: the Norwegian krone, the Australian dollar, the Canadian dollar and the British pound. In contrast, the Japanese Yen and the Swiss Franc move multilaterally against the group of oil currencies and not against the global price of oil.
| Item Type: | Articles |
|---|---|
| Status: | Published |
| Refereed: | Yes |
| Glasgow Author(s) Enlighten ID: | MacDonald, Professor Ronald |
| Authors: | Kunkler, M., and MacDonald, R. |
| College/School: | College of Social Sciences > Adam Smith Business School > Economics |
| Journal Name: | Energy Economics |
| Publisher: | Elsevier |
| ISSN: | 0140-9883 |
| ISSN (Online): | 1873-6181 |
| Published Online: | 01 December 2018 |
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