OIL PRICES AND THE RISE AND FALL OF THE US REAL EXCHANGE-RATE

Questions of the relative importance of real vs, monetary shocks in ex plaining exchange rate movements still have no widely accepted answer, despite their importance both for the research agenda and for policy questions. We examine this issue using a variety of empirical techniqu es for the US effective exchange rate. We find that a stable link exis ts between oil price shocks and the US real effective exchange rate ov er the post-Bretton Woods period. The results suggest that oil prices may have been the dominant source of persistent real exchange rate sho cks and that energy prices may have important implications for future work on exchange rate behavior. (C) 1998 Elsevier Science B.V. All rig hts reserved.