Dependence of Exchange Rate Volatility on Commodity Prices Example of Russian Ruble

Project

This project examines the dependence of exchange rate volatility on commodity prices. We analyse the example of the Russian Ruble / US-Dollar exchange rate and its dependence on crude oil prices. A simple example of a tree-structured GARCH model for volatility is provided including our own implementation in R.

Paper Abstract

This paper examines the relationship between volatility of of the Russian Ruble / US Dollar exchange rate and volatility of the Brent Oil price. For this we use a classic GARCH model, a tree-GARCH model and a DCC-GARCH model. We also test for structural breaks. We show that at times of decreasing oil price returns, the volatility of the Russian Ruble / US Dollar exchange rate is less persistent and the conditional correlation between Russian Ruble / US Dollar exchange rate returns and Brent oil price returns is more persistent than in normal market conditions.

Contributors

Johannes Cordier, Liudmila Gorkun-Voevoda, Erik-Jan Senn

Data sources

Exchange rate: https://www.cbr.ru/currency_base/dynamics/?UniDbQuery.Posted=True&UniDbQuery.mode=1&UniDbQuery.date_req1=&UniDbQuery.date_req2=&UniDbQuery.VAL_NM_RQ=R01235&UniDbQuery.From=01.01.2000&UniDbQuery.To=15.05.2020

Oil & riskfree rates: https://fred.stlouisfed.org/series/DCOILBRENTEU https://fred.stlouisfed.org/series/IRLTCT01RUM156N https://fred.stlouisfed.org/series/DGS10 https://fred.stlouisfed.org/series/DGS3MO

Riskfree rates Russian Federation https://cbr.ru/hd_base/zcyc_params/

Russian Government Bond Zero Coupon Yield Curve: https://cbr.ru/eng/hd_base/zcyc_params/?UniDbQuery.Posted=True&UniDbQuery.From=14.05.2010&UniDbQuery.To=15.05.2020

Thomson Reuters for Exchange rates and Indices