Dynamic interactions between oil price and exchange rate.
ABSTRACT: This paper contributes to better understand the dynamic interactions between effective exchange rate (EER) and oil price for an oil-importing country like the U.S. by considering a Time-Varying Parameter VAR model with the use of monthly data from 1974:01 to 2019:07. Our findings show a depreciation after an oil price shock in the short-run for any period of time, although the pattern of long-run responses of U.S. EER is diverse across time periods, with an appreciation being observed before the mid-2000s and after the mid-2010s, and a depreciation between both periods. This diversity of response should lead policy makers to react differently in order to counteract such shocks. Furthermore, the reaction of oil price to an appreciation of U.S. EER is negative and different over time, which may generate different adverse effects on investment. The knowledge of such effects may help financial investors to diversify their investments in order to optimize the risk-return profile of their portfolios.
Project description:This paper estimates changes in the energy return on investment (EROI) for five large petroleum fields over time using the Oil Production Greenhouse Gas Emissions Estimator (OPGEE). The modeled fields include Cantarell (Mexico), Forties (U.K.), Midway-Sunset (U.S.), Prudhoe Bay (U.S.), and Wilmington (U.S.). Data on field properties and production/processing parameters were obtained from a combination of government and technical literature sources. Key areas of uncertainty include details of the oil and gas surface processing schemes. We aim to explore how long-term trends in depletion at major petroleum fields change the effective energetic productivity of petroleum extraction. Four EROI ratios are estimated for each field as follows: The net energy ratio (NER) and external energy ratio (EER) are calculated, each using two measures of energy outputs, (1) oil-only and (2) all energy outputs. In all cases, engineering estimates of inputs are used rather than expenditure-based estimates (including off-site indirect energy use and embodied energy). All fields display significant declines in NER over the modeling period driven by a combination of (1) reduced petroleum production and (2) increased energy expenditures on recovery methods such as the injection of water, steam, or gas. The fields studied had NER reductions ranging from 46% to 88% over the modeling periods (accounting for all energy outputs). The reasons for declines in EROI differ by field. Midway-Sunset experienced a 5-fold increase in steam injected per barrel of oil produced. In contrast, Prudhoe Bay has experienced nearly a 30-fold increase in amount of gas processed and reinjected per unit of oil produced. In contrast, EER estimates are subject to greater variability and uncertainty due to the relatively small magnitude of external energy investments in most cases.
Project description:This study investigates whether multiple bubbles exist in the copper price on the basis of the Generalized Supremum Augmented Dickey-Fuller (GSADF) approach (Phillips et al., 2013). This technique delivers date-stamping strategies for the emergence as well as collapse of explosive bubble episodes and is best suited for practical application to time series. The results reveal that four explosive bubbles are detected over the period of 1980–2019 when copper price deviates from fundamental value. Besides, this finding is in accordance with the asset pricing model (Gürkaynak, 2008), which generally considers both fundamental and bubble components in the presence of asset prices. Based on the empirical results, the multiple emergence and collapse of multiple price bubbles are attributed to speculation, depreciation of the U.S. dollar, an imbalance between supply and demand, and financial crises. Policymakers should actively recognize bubble episodes and monitor their evolution, which could be conducive to achieving the effective stabilization of the international copper price. To reduce excess price fluctuations and explosive copper bubbles, authorities should impose restrictions on excessive speculative behaviors under extreme market conditions. Highlights • Investigate whether multiple bubbles exist in copper price.• On the basis of Generalized Supremum Augmented Dickey-Fuller (GSADF) approach.• Four explosive bubbles are detected over the sample period when copper price deviates from fundamental value.• Causes of exuberance and collapse of multiple price bubbles are investigated.
Project description:This present research investigates the money demand function of Saudi Arabia using a long period 1968-2016. In addition, the asymmetrical effects of real exchange rate changes have also been explored in the estimated money demand function. Our empirical results suggest that income and inflation have positive and negative effects on money demand respectively. Further, a real appreciation of US dollar has a positive effect but a real depreciation has a negative effect on the money demand. Furthermore, income and price homogeneity hypotheses do not hold for the estimated elasticities. Moreover, the estimated model is found stable with the theoretically expected effects of money demand's determinants. Therefore, we are suggesting money supply as a monetary policy instrument to the economy of Saudi Arabia.
Project description:In this paper, we analyze the connectedness between the recent spread of COVID-19, oil price volatility shock, the stock market, geopolitical risk and economic policy uncertainty in the US within a time-frequency framework. The coherence wavelet method and the wavelet-based Granger causality tests applied to US recent daily data unveil the unprecedented impact of COVID-19 and oil price shocks on the geopolitical risk levels, economic policy uncertainty and stock market volatility over the low frequency bands. The effect of the COVID-19 on the geopolitical risk substantially higher than on the US economic uncertainty. The COVID-19 risk is perceived differently over the short and the long-run and may be firstly viewed as an economic crisis. Our study offers several urgent prominent implications and endorsements for policymakers and asset managers. Highlights • We analyze the time-frequency relationship between COVID-19 outbreak, oil price, geopolitical risk, economic uncertainty and US stock market.• The wavelet-based approach shows that the associations between the variables vary across time and investment horizons.• COVID-19 outbreak has a greater effect on the US geopolitical risk and economic uncertainty than on the US stock market.• Oil is leading the US market at low and high frequencies throughout the observation period.• While oil markets may recover through OPEC+ negotiations, the COVID-19 uncertainty remains the main concern of US policymakers.
Project description:We investigate how Global Economic Policy Uncertainty (GEPU) drives the long-run components of volatilities and correlations in crude oil and U.S. industry-level stock markets. Using the modified generalized autoregressive conditional heteroskedasticity mixed data sampling (GARCH-MIDAS) and dynamic conditional correlation mixed data sampling (DCC-MIDAS) specifications, we find that GEPU is positively related to the long-run volatility of Financials and Consumer Discretionary industries; however, it is negatively related to Information Technology, Materials, Telecommunication Services and Energy. Unlike the mixed role of GEPU in the long-run volatilities, the long-run correlations are all positively related to GEPU across the industries. Additionally, the rankings of the correlations of Energy and Materials are time-invariant and classified as high, with the little exception of the latter. The Consumer Staples industry is time-invariant in the low-ranking group. Our results are helpful to policy makers and investors with long-term concerns.
Project description:Low oil price requires oil companies to reduce costs and increase benefits. The wells with deficient fluid supplies approximately account for 20-30% of all producing wells, and this situation is even worse in the old oilfields. Intermittent production is an effective way to reduce the cost and increase the system efficiency to overcome the shortage of oil supply from the reservoir. The key is to optimize the intermittent pumping scheme, i.e., to design reasonable shut-in and operating periods. In this study, this is achieved using the dynamic change of the fluid level in the wellbore. From the electrical power curve to the dynamometer card, the dynamic drop of the fluid level can be obtained, and thus the optimal operation time of the well; at last, from the inflow performance of the well, the optimal shut-in period can be obtained. This method shows a good application in the field through a case study.
Project description:This article presents a dataset that combines several time series of economic variables for Portugal, from 1969 to 2015, which can be used to accurately measure the change in value of different series in the fisheries sector. Raw data includes total nominal revenue from fish landings measured in thousands of euros, a consumer price index, and the nominal exchange rate of the Portuguese escudo against the US dollar (only until 1998). We use these raw data series to correct for inflation and to produce information on fish landings measured in constant prices in euros and to discuss the impact of the exchange rate depreciation in the fish sector if measured in US dollars. Data was retrieved from publicly accessible sources such as Statistics Portugal (Instituto Nacional de Estatística, INE) for fish landing revenue, AMECO (European Commission) for Consumer Price Index data, and International Financial Statistics (International Monetary Fund) for exchange rate data. The dataset is useful to academics, policymakers and advocacy groups alike for understanding the real production of the fisheries sector.
Project description:Prior studies have shown that traders quickly converge to the price-quantity equilibrium in markets for goods that are immediately consumed, but they produce speculative price bubbles in resalable asset markets. We present a stock-flow model of durable assets in which the existing stock of assets is subject to depreciation and producers may produce additional units of the asset. In our laboratory experiments inexperienced consumers who can resell their units disregard the consumption value of the assets and compete vigorously with producers, depressing prices and production. Consumers who have first participated in experiments without resale learn to heed their consumption values and, when they are given the option to resell, trade at equilibrium prices. Reproducibility is therefore the most natural and most effective treatment for suppression of bubbles in asset market experiments.
Project description:This study investigates oil price risk exposure of financial and non-financial industries around the world during the COVID-19 pandemic. The empirical results show that oil supply industries benefit from positive shocks to oil price risk in general, whereas oil user industries and financial industries react negatively to positive oil price shocks. The COVID-19 outbreak appears to moderate the oil price risk exposure of both financial and non-financial industries. This brings important implications in risk management of energy risk during the pandemic.
Project description:This paper examines whether American banks' exposure to the oil industry could lead to instability in both oil and financial markets. To address this issue, we investigate volatility spillovers between oil prices and the stock prices of the four major American banks involved in the oil industry by employing the vector autoregressive fractionally integrated moving average framework. We use high-frequency data from January 3, 2006, to June 30, 2016. Our results support the existence of such volatility spillovers, as evidenced by the significant volatility responses of oil price (banks' stock price) to a shock in banks' stock price (oil price). These responses, more pronounced following the banks' exposure to the shale industry, mainly reflect the financial fragility of shale companies and their high indebtedness levels. Thus, this paper emphasises how the shale oil industry could trigger turmoil in both oil and financial markets.