The Relationship of Crude Oil Prices and the U.S. Dollar Exchange Rate in the Philippines

Abstract

This paper examines the U.S. dollar exchange rate, gasoline octane 95, diesel, and kerosene prices in one econometric model. These comprehensive literature reviews related to this topic of interest prove evidence of variations in the relationship that exists between the U.S. dollar exchange rate,  gasoline octane 95, diesel, and kerosene prices. This study will undertake to find out the effect of the rising crude oil prices in the Philippines on the U.S. dollar exchange rate during these times. Significantly, Through the ARDL bounds testing approach, the research adds to the body of literature by examining the relationship between crude oil prices and the U.S. dollar exchange rate in the Philippines. The study adopted the Autoregressive Distributed Lag (ARDL) model to estimate the causality function, F-Bounds Test to establish long-run causal significance, and Error Correction Term (ECT) to determine how long until the adjustment of short-run errors to re-equilibrate to the long-run equilibrium. The results show that the lag of crude oil prices has a significant relationship with the lag of the U.S. dollar exchange rate in the short run. In regards to the long-run, the crude oil prices were found to be insignificant, but the kerosene and gasoline prices may still have a positive long-term impact, and diesel has a negative long-term impact on the U.S. dollar exchange rate against Philippine Peso.