On the relation between crude oil prices and exchange rates in sub-saharan African countries: A nonlinear ARDL approach

Abstract

ABSTRACTThis article examines the effect oil price fluctuations have on exchange rates in selected sub-Saharan African (SSA) countries. To investigate the subject thoroughly, unlike previous studies we take specific account of the asymmetric effects of oil price changes in our modeling process, using the nonlinear autoregressive distributed lag (NARDL) model proposed by Shin et al. [2014. “Modelling Asymmetric Cointegration and Dynamic Multipliers in a Nonlinear ARDL Framework.” In Festschrift in Honor of Peter Schmidt: Econometric Methods and Applications, edited by R. Sickels, and W. Horrace, 281–314. New York: Springer.] The results provide strong evidence that changes in oil prices have the asymmetric effects on the real exchange rates in the long-run; that is, the movements in the real exchange rates in selected SSA countries appear to respond mostly more to oil price increases than to decreases. In the short-run, on the other hand, the asymmetry of oil price changes is not observed.