The role of crude oil demand and supply shocks on exchange rates: empirical evidence from South Korea

The primary contribution of the present paper is to explicitly take into consideration the role that the three different components of crude oil shocks - oil supply shocks, aggregate demand shocks, and oil-specific demand shocks - when studying the nexus between oil price shocks and the South Korean won (KRW). We discover that oil demand shocks have had significant impacts on KRW over the past two decades: that is, an upsurge in oil prices driven by positive shocks in aggregate demand and oil-specific demand appears to appreciate KRW. However, oil supply shocks turn out to have negligible impacts. We also unveil that two oil demand shocks seem to asymmetrically influence KRW in the short run.