Tail Causality between Crude Oil Price and RMB Exchange Rate

Abstract

In this paper we assess the causal relationship between international crude oil price changes and the RMB exchange rate using daily information from 21 July 2005 to 5 April 2017. In addition to linear causality tests, we employ quantile causality test to identify prior imperceptible causality in quantiles. We fi nd a causal relationship from crude oil price to exchange rate at each quantile interval, but the reverse only appears in tail. This may help to explain why a traditional linear test fails to capture the causality from exchange rate to crude oil price as the quantile causalities in tails are canceled out by each other. Moreover, using RMB as the settlement currency in crude oil trade can weaken the prior signifi cant causal relationships between crude oil price and exchange rate, whereas the reform of exchange rate marketization reignites the tail causalities from exchange rate to crude oil price. These fi ndings recommend a wider use of domestic currencies in crude oil trade to avoid risk from the crude oil market.

The Effect of Oil Prices on Industrial Production in Oil-Importing Countries: Panel Cointegration Test

“…Many researchers have contributed to the This Journal is licensed under a Creative Commons Attribution 4.0 International License literature on the relationship between oil prices and economic and financial variables, starting with the work of Hamilton (1983). Sadorsky (1999), Basher and Sadorsky (2006), Park and Ratti (2008), Imarhiagbe (2010), Lee and Zeng (2011), Lee et al (2012), Syzdykova (2018) examining the relationship between oil prices and stock market index; Camarero et al (2002), Korhonen and Juurikkala (2009), Buetzer et al, (2012), Lin and Su, (2020), Musa et al (2020), Ding et al (2020) analyzing the relationship between oil prices and exchange rate, Lardic and Mignon (2008), Lescaroux and Mignon (2008), Mehrara andMohaghegh (2011), Hamilton (2012), Ashley and Tsang (2013), Maghyereh et al (2019), Mo et al (2019), van Eyden et al (2019, Maheu et al (2020) examined the relationship between oil prices and growth.…”