Publications: Papers

The Oil-Dollar Link: The Fed, Hedge Funds, and Why Oil Could Hit $150 per Barrel (The International Economy, Spring 2008)

The relationship between the dollar’s exchange rate and oil prices has been debated now for decades. Oil-exporting countries justified their first round of price hikes to $10 per barrel in late 1973 by blaming global inflation and the falling dollar. Oil-exporting countries again blamed the weakening dollar for the second major round of price increases in 1978. Eight years later, the dollar’s resurging value was cited as a cause of the 1986 price decline. More recently, oil prices and the dollar’s exchange rate have seemed to move as one. However, the mechanism that links the movement of oil prices and the dollar has never been satisfactorily explained. Indeed, a credible explanation may never be found. Certainly no one to date has advanced a convincing theory for their coincident movement. Yet the relationship clearly exists, particularly since 2007. So why does one observe this linkage and what does it portend for the future?