Oil Price Shocks and Exchange Rate Dynamics: New Evidence From Decomposed and Partial Connectedness Measures for Oil Importing and Exporting Economies

In this study, we introduce a novel framework of partial connectedness measures with which we investigate contagion dynamics between different types of oil price shocks and exchange rates. On general principles, oil price shocks are persistent net transmitters of shocks within the network. Partial findings suggest that in the pre-COVID-19 period, NET Oil\FX shocks made up most of the net connectedness values for most countries. What is more, both oil exporters and oil importers without any exception were all net receivers of NET Oil\FX shocks. During the COVID-19 period, evidence further suggests that apart from differences across the groups of countries there are also differences within the groups. We also find that the oil-risk shock transmits to the other two types of oil shocks both in the pre-COVID-19 and during the COVID-19 period. Overall, findings are robust and have potential value for portfolio managers.