Conditional dependence structure between oil prices and exchange rates in Latin America: A copula-GARCH approach

Abstract

This work studies the relationship between oil prices and exchange rates for six Latin American countries using a copula-GARCH methodology. This approach takes into account well-known particularities of both oil prices and exchange rates: excess-kurtosis, skewness and the presence of leverage effects. The results show that a co-movement relationship exists between oil prices and Latin American exchange rates, however, the strength of this relationship has evolved over time. While in the first years of the 2000s the relationship was almost non-existent, in more recent years the connection has become increasingly stronger.