TY  - UNPD
A1  - Kilian, Lutz
A1  - Zhou, Xiaoqing
T1  - Oil prices, exchange rates and interest rates
T2  - Center for Financial Studies (Frankfurt am Main): CFS working paper series ; No. 646
N2  - There has been much interest in the relationship between the price of crude oil, the value of the U.S. dollar, and the U.S. interest rate since the 1980s. For example, the sustained surge in the real price of oil in the 2000s is often attributed to the declining real value of the U.S. dollar as well as low U.S. real interest rates, along with a surge in global real economic activity. Quantifying these effects one at a time is difficult not only because of the close relationship between the interest rate and the exchange rate, but also because demand and supply shocks in the oil market in turn may affect the real value of the dollar and real interest rates. We propose a novel identification strategy for disentangling the causal effects of traditional oil demand and oil supply shocks from the effects of exogenous variation in the U.S. real interest rate and in the real value of the U.S. dollar. Our approach exploits a combination of sign and zero restrictions and narrative restrictions motivated by economic theory and extraneous evidence. We empirically evaluate popular views about the role of exogenous real exchange rate shocks in driving the real price of oil, and we examine the extent to which shocks in the global oil market drive the U.S real exchange rate and U.S. real interest rates. Our evidence for the first time provides direct empirical support for theoretical models of the link between these variables.
T3  - CFS working paper series - 646 
KW  - exchange rate
KW  - market rate of interest
KW  - oil price
KW  - global real activity
KW  - commodity
Y1  - 2020
UR  - http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/55826
UR  - https://nbn-resolving.org/urn:nbn:de:hebis:30:3-558268
UR  - https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3731015
IS  - November 13, 2020
PB  - Center for Financial Studies
CY  - Frankfurt, M.
ER  -