China and the Relationship Between the Oil Price and the Dollar
We study cointegration and causality between the real price of oil and the real price of the dollar over the 1974-2004 period. Our results suggest that a 10% rise in the oil price coincides with a 4.3% appreciation of the dollar in the long run, and that the causality runs from oil to the dollar. Through the development of a theoretical model, we then investigate possible reasons why this relationship could be reversed in the future due to the emergence of China as a major player on both the oil and the foreign exchange markets.
Oil price; real exchange rate; dollar; euro; China; cointegration; causality; error correction model; dollar; energy cost; models; foreign exchange markets
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