Real effective exchange rate: is it influenced by the oil price?

This paper employs co-integration and causality tests to investigate the influence of real crude oil price on the real effective exchange rates of USA and Eurozone during the sample period 1998-2014 in monthly frequency. The paper contributes to the literature by including both monetary and real exchange rate channel for the oil price effects propagation into the economy, as well as the inclusion of non-linear measure of oil-price and the realized oil price volatility measure. Results show no co-integration between real exchange rates, either in US or Eurozone, even though there is a causal link from real effective US dollar exchange rate to Brent oil price. In our sample, the measures of oil volatility do not provide any improvement of the estimation and show no causal links with real exchange rates in US and Eurozone.