Abstract:
This paper extends the existing empirical literature by investigating whether the COVID19 crisis has strengthened the dynamic relationships between oil price and exchange
rate. We find significant breaks in the relationships wherein a common break is detected
around the COVID-19 outbreak period. Of note, the interactions between the two
markets intensified since the outbreak of the COVID-19 pandemic. Overall, our findings
imply that the investors and policymakers are taking stock of the valuable information
from the unanticipated occurrence of the COVID-19 pandemic. Thus, diversification in
the form of portfolio switches towards foreign currency-denominated assets may be
effective in the case of a depreciation of the domestic currency.
