The Shock Effect of International Oil Price Fluctuation on RMB Exchange Rate-Based on the stochastic version of MFD and SVAR models

Abstract

Oil is a basic energy source closely related to finance. With the rapid growth of China's oil consumption and the increasing dependence of China's oil on foreign countries, the impact of international oil price fluctuations on China's macroeconomy has become more and more prominent. Based on the stochastic version of the MFD model, this paper employs the SVAR structural vector autoregressive estimation method to measure the impact effect of international oil price volatility on the RMB exchange rate in the time period of January 2002-December 2022. The study shows that the movement of the RMB exchange rate is basically caused by its own perturbation, and the Granger causality test leads to the conclusion that there is no obvious causality between the international oil price and the RMB exchange rate. The study is of great significance for China to maintain the flexibility of the RMB exchange rate, to further play the role of the exchange rate in regulating the macroeconomy and the automatic stabilizer of the balance of payments, and to improve China's risk-resistant ability. Research on the effect of crude oil prices on currency exchange rate shocks emerged after the 1984 oil crisis.