A Time Varying Nexus Between Exchange Rate and Oil Price Volatility: An Evidence of VAR-DCC –GARCH Approach

Using daily data ranging from January 2020 to June 2023 we aim to investigate the interconnectedness between the crude oil price and the exchange rate price. As first step we use the impulse response function to measure the interaction between both variables within a shock occurred on one of the studied variables. The findings justify that a shock occurred within the price of the crude oil has a direct effect to exchange rate variability. At the second step we use the VAR-DCC-GARCH to employ the time frequency correlation between both variables. Our funding proof dependency of the Japanese yen , the mexico pesos , the Canadian dollar as well as the indian rupee to the volatility of the price of crude oil. The Russian rubble show great resistance to twards the volatility of the price of crude oil. Our findings suggest that the dollarization of world economy tend to influence significantly the volatility of foreign exchange market on the crude oil price.