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Oil Price Fluctuations and Exchange Rate in Selected Sub-Saharan Africa countries: A Vector Error Correction Model Approach

Author

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  • Benjamin Ighodalo Ehikioya

    (Department of Banking and Finance, College of Management and Social Sciences, Covenant University, Ota, Nigeria,)

  • Alexander Ehimare Omankhanlen

    (Department of Banking and Finance, College of Management and Social Sciences, Covenant University, Ota, Nigeria,)

  • Ayopo Abiola Babajide

    (Department of Banking and Finance, College of Management and Social Sciences, Covenant University, Ota, Nigeria,)

  • Godswill Osagie Osuma

    (Department of Banking and Finance, College of Management and Social Sciences, Covenant University, Ota, Nigeria,)

  • Cordelia Onyinyechi Omodero

    (Department of Accounting, College of Management and Social Sciences, Covenant University, Ota, Nigeria.)

Abstract

This study employs the Johansen cointegration and the vector error correction model (VECM) to assess the dynamic relationship that exists between oil price fluctuations and the real exchange rate in selected Sub-Saharan Africa countries from January 2004 to December 2017. The result of the monthly data analysis provides evidence to support a cointegration between oil prices and the real exchange rate in sub-Saharan oil dependent nations. The results of the study established a long-run equilibrium connection between fluctuations in oil price and the real exchange rate. Importantly, the study demonstrates the significant power of oil prices to predict the movement of real exchange rates in Nigeria, Angola, the Republic of Congo, Equatorial Guinea and Gabon. This study has implications not only for investors and industry leaders but also for policymakers responsible for the growth and stability of the economy. The results of this study also attest to the need for urgent economic diversification to other sectors of the economy both to reduce the negative influence of oil price fluctuations and to boost economic growth.

Suggested Citation

  • Benjamin Ighodalo Ehikioya & Alexander Ehimare Omankhanlen & Ayopo Abiola Babajide & Godswill Osagie Osuma & Cordelia Onyinyechi Omodero, 2020. "Oil Price Fluctuations and Exchange Rate in Selected Sub-Saharan Africa countries: A Vector Error Correction Model Approach," International Journal of Energy Economics and Policy, Econjournals, vol. 10(6), pages 242-249.
    • Handle: RePEc:eco:journ2:2020-06-32
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    2. Taufeeque Ahmad Siddiqui & Haseen Ahmed & Mohammad Naushad & Uzma Khan, 2023. "The Relationship between Oil Prices and Exchange Rate: A Systematic Literature Review," International Journal of Energy Economics and Policy, Econjournals, vol. 13(3), pages 566-578, May.
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    More about this item

    Keywords

    Oil price; Exchange rates; Sub-Sahara; Cointegration; Economy;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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