Research On Mean Spillover Effect And Correlation Under Structural Breaks Between Crude Oil Price And US Dollar Exchange Rate

Recently some key topics of the relationship between crude oil price and US dollar exchange rate have not been discussed. For example, whether there is nonlinear granger causality between them, what the time-varying influential extent may be and what influence the structural breaks caused by external events or new information may exert on the volatility relationship of them. To solve these problems, this paper analyzes the interaction between crude oil price and US dollar exchange rate from mean spillover and volatility correlation under structural breaks.In mean spillover of crude oil price and US dollar exchange rate, because of new data and convenient analysis below, we firstly analyze their linear granger causality based on VAR model, then HJ test and DP test was used to study the two nonlinear lead lag relationship of them, finally using the TVP-VAR model to examine the time varying effect strength between them. And in volatility correlation of them under structural breaks we use the ICSS algorithm to define the structural breaks of crude oil price and US dollar exchange rate, then the DCC-GARH model with structural breaks is constructed, which is used to study the change of the volatility correlation of them in both cases that the structural breaks are considered and ignored. The empirical results show that crude oil price and US dollar exchange rate exist a two-way mean spillover, of which the one-way linear granger causality from dollar to crude oil is consistent with previous many researches, and our new discovery indicates there exists nonlinear ganger causality from crude oil to dollar. Then the time-varying analysis of them generally supports the granger causality test results, and the US dollar exchange rate have a more stable and stronger negative effects on the crude oil price in the short term, which implies that the US dollar exchange rate may play a leading role in the two markets. But this effect shows a trend of weakening since 2012. Besides, ignoring the structural breaks can overestimated the volatility persistence of the single oil price or US dollar exchange rate, and the volatility persistence of crude oil price gathers more overvalued than the US dollar exchange rate, which suggests that the crude oil price is affected more easily than the US dollar exchange rate by the external shocks. Furthermore, the structural breaks plays an important role in the volatility relationship of them in the short time, ignoring the structural breaks may weaken the positive volatility correlation between them, and significantly increased the negative volatility correlation of them, of which this enhancement effect of the negative volatility correlation is most obvious during the financial crisis. These show that there are external factors that can inhibit the subdivided their volatility transmission, and increase the reverse their risk transmission, the financial crisis of 2008 did have produced important influence on the link between the volatility of crude oil price and US dollar exchange rate. Besides, the paper put forward some policy suggestions to China from establish strategic of crude oil reserve in our country, reducing our reliance on oil imports, actively promoting the internalization of the RMB and Scattered individual investment based on our empirical results.