Oil prices, exchange rates and stock markets under uncertainty and regime-switching

By David Roubaud, Mohamed Arouri. Finance Research Letters, 2018

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We contribute to the ongoing literature on the interactions between oil prices, exchange rates and stock markets by considering the effects of economic policy uncertainty (EUP). Based on a VAR and a multivariate Markov switching vector autoregressive (MS-VAR) models, we show (i) significant interrelations between currency, oil and stock markets; (ii) relationships between the variables are rather non-linear; (iii) links between the variables change from one regime to the next, but they are stronger during volatile periods; and (iv) oil plays an active role in the transmission of price shocks to both the exchange rate and stock markets.

Subfields: Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/91fb2ab234e0de2f4c1c41bb891a767013f69fbc