Energy Price Fluctuations and Their Effect on the Euro Based on VAR and VECM Models

Global fluctuations in energy prices, particularly those related to oil and gas, significantly influence the Euro exchange rate. While much of the existing literature emphasizes the impact of oil price changes on various currencies, fewer studies focus on the Euro. This paper uses the VAR and VECM models, along with the Johansen cointegration test and impulse response analysis (IRF), to explore both immediate and sustained effects of shifts in energy prices on the Euro. The results show that price changes, particularly in natural gas, have a strong immediate effect on the Euro, although their influence weakens over time, despite the presence of a long-term cointegration relationship. This study provides important insights for policymakers in the Eurozone and offers empirical evidence to support adjustments in exchange rate policies in response to energy price volatility.