Tuesday, 12 August 2008

Oil and the dollar

James Hamilton at Econbrower talks about oil and the dollar. Hamilton opens his piece by saying
Although movements in the value of the dollar are one factor contributing to recent changes in the dollar price of oil, I do not believe they are the most important factor. Here I review some of the evidence that persuades me of this.
He concludes by noting
The exchange rate is unquestionably one variable that influences the dollar price of oil. In recent data, as much as 20% of oil price movements could be attributed to changes in the exchange rate, or at least to news developments that matter for both exchange rates and oil prices. But that also means that 80% of what we see happening to the price of oil is completely uncorrelated with whatever might be influencing the exchange rate.
If you are interested in such things the bit between the beginning and the end is worth a read.

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