Exchange Rates and Copper
Athanasios Tsagkanosa, Eftihia-Maria Koutsioumpab
a Department of Business Administration, University of Patras, University Campus – Rio, P.O. Box 1391, Patras 26500, Greece. E-mail: atsagkanos@upatras.gr
(Corresponding author, Tel: +302610969837)
b Department of Business Administration, University of Patras, University Campus – Rio, P.O. Box 1391, Patras 26500, Greece. E-mail: up1091103@ac.upatras.gr
ABSTRACT
In this study, we individually examine the relationship between the price of copper and the most powerful exchange rate at the international level, that of the Euro-Dollar. Our aim is to uncover short-term and long-term relationships that will help and guide us in a policy model in the Eurozone and the US regarding the speed and form of business financing to contribute to a stable and continuous growth with an emphasis on green investments. These relationships will be analyzed taking into account the changes in economic and social conditions. For this reason, we take a fairly large sample of monthly observations and in particular from January 1, 1999, to February 1, 2024. The Granger causality test shows that there is a two-way causal relationship between the variables and therefore a short-term relationship between the variables. At the same time, this relationship seems to acquire long-term characteristics since Johansen's cointegration test shows that the series are indeed cointegrated. However, taking a step further we take into account the conditions of financial stress and volatility and examine the volatility transmission between the two-time series through a structural VAR (SVAR) model. The results clearly showed that it is changes in the price of copper that cause changes in the euro-dollar exchange rate. In addition, this takes place after a period. Furthermore, white's heteroscedasticity test (in both its forms) showed that there is heteroscedasticity. This leads to significant volatility transmission between the two series which is obviously because of financial crises throughout the mentioned period. Based on these results we can claim that the effect from copper prices to the exchange rate is due to the presence of volatility transmission between the two series while leading to a different economic policy approach for the Eurozone and the US. The results and recommendations are important not only for economic policy makers but also for investors and managers of large funds.