Spillovers across the crude oil and major currencies exchange rates using dynamic-quantile-frequency analysis

This study examines the link between the daily price changes of WTI and major global currencies from 2000 to 2022. It utilizes mixed dynamic-frequency-quantile-based models to provide new insights into their interconnectedness. Significant price volatility spillages were observed between the two markets, particularly between the oil and JPY currencies. It suggests that the Euro and the Swiss franc have the highest capacity to transmit such fluctuations. Our analysis of quantile connectedness provided compelling evidence that the average level of connectedness between oil prices and Foreign Exchange Markets (FEM) varies across different quantiles. The presence of asymmetric tail dependence between the energy and FEM was also observed. Ultimately, a frequency analysis uncovered the transmission of brief periods of uncertainty shocks between the oil and FEM. The middle- and long-term components exhibited negligible interconnectedness, except during the COVID-19 pandemic (C19P) when there was a rise in the impact of the medium-term component. These findings can provide valuable guidance for policymakers regarding market participants' financial stability and performance.