Oil Price and Exchange Rate Nexus in Selected African OPEC Countries: Emphasis on Nigeria, Gabon and Algeria (1986-2023)
DOI:
https://doi.org/10.5281/zenodo.8380117Keywords:
Brent Crude Oil Price, Exchange Rate, Toda-Yamamoto, Volatility, West Texas Intermediate Crude Oil PriceAbstract
This study examined the relationship between oil price and exchange rate in three African OPEC countries namely Nigeria, Algeria and Gabon from 1986 to 2023. Time series secondary data on Brent and WTI crude oil prices were sourced from statista.com while data on Exchange Rate and External Reserves were sourced from the World Bank. The Toda-Yamamoto model which is an augmented Vector Autoregressive model, was employed to analyse the data. Impulse Response Functions was used to analyse the response of variables to shocks. The findings revealed a unidirectional causality running from oil price to exchange rate in Nigeria and no causality between oil price and exchange rate in both Algeria and Gabon. Findings also revealed an insignificant impact of oil prices on exchange rate in Algeria and Gabon but a significant impact was found in Nigeria. Exchange rate on other hand was found to be insignificant on world oil price for the three countries. The study also compared the impact of the two different oil prices i.e. Brent and WTI on exchange rate and found the same result in the three countries. The study therefore recommends that all the three countries should continue their efforts to diversify their economy away from heavy dependence on oil. Promoting sectors such as agriculture, manufacturing, services, and tourism can help reduce vulnerability to oil price fluctuations.
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