Exchange rate and commodity prices

Chapter 1 discusses how fluctuations in crude oil prices deeply influence the global economy, particularly in oil-exporting countries. Chapter 2 explores the economic dynamics of crude oil prices and their impact on the Real Effective Exchange Rate (REER) in oil-exporting countries. The analysis covers a diverse group of oil-exporting countries. We determine the REER based on the Behavioural Equilibrium Exchange Rate (BEER) model for these countries. Employing both time-series and panel methods, such as Johansen cointegration and the Autoregressive Distributed Lag (ARDL) bounds testing, the study investigates the real oil price on REER. While timeseries results are mixed, Pooled Mean Group (PMG) methods reveal a significant positive relationship between real oil price, Net Foreign Assets (NFA), and six-sector value-added deflator (6SECT) with REER. Chapter 3 examines whether exchange rates can reliably forecast international oil prices for oil-exporting countries. We focus on forecasting models for crude oil and its derivatives. We evaluate both in-sample and out-of-sample performance across global oil futures and major benchmarks (Brent, WTI, Dubai), using nominal exchange rates from Brazil, Canada, Colombia, Indonesia, Mexico, and Norway. Our findings reveal that the exchange rates of Brazil, Colombia, Mexico, and Norway possess substantial short-term forecasting power for crude oil and its derivative financial products, likely due to the significance of oil in their economies. In contrast, Canada and Indonesia have relatively small oil rents, which may explain why their exchange rates are less effective at predicting oil prices. Chapter 4 further investigates whether crude oil price predictability exists within a small window. We find that most of these windows occur during economic downturns, suggesting that oil-exporting countries’ exchange rates may gain predictive power in times of crisis. Chapter 5 concludes this thesis by highlighting key findings, addressing limitations, and suggesting avenues for future research.