Exchange‐Rate Responses to Structural Oil‐Market Shocks: Revisiting Krugman's Real–Financial Adjustment Framework

ABSTRACT This study examines how structural oil‐market shocks affect exchange rates through the real and financial adjustment mechanisms proposed by Krugman (1983). Using a two‐stage SVAR–ARDL/NARDL framework, we identify oil supply, aggregate demand, and oil‐specific demand shocks and estimate their symmetric and asymmetric effects for oil‐importing economies (Korea and Japan) and oil‐exporting petro‐currency economies (Canada and Norway). The results reveal pronounced cross‐country heterogeneity. Aggregate demand shocks generate persistent depreciation for oil importers and sustained appreciation for oil exporters, with the effects rapidly reflected in exchange rates. Oil supply shocks do not exhibit a common adjustment pattern across countries, highlighting the importance of country‐specific financial and institutional structures. Oil‐specific demand shocks are economically meaningful for oil‐importing economies but produce divergent responses across Korea and Japan. Nonlinear long‐run adjustment is concentrated in Japan and Norway and is driven primarily by oil supply and oil‐specific demand shocks, whereas Korea and Canada exhibit largely linear responses. Overall, the findings provide modern empirical support for Krugman's real–financial adjustment framework.