Investigating the oil price-exchange rate nexus: evidence from Africa 1970-2004

Abstract

In this paper, we aim to provide further insights into the importance of the real oil price as a determinant of real exchange rates, for a pool of African countries. While this relationship has been explored extensively for industrialised economies, African countries have received little attention. By means of cointegration techniques and nonlinear dynamics we find that, for some of these countries, shocks in the real price of oil are particularly important in determining the real exchange rates, even in the long run. These results are of interest for policymakers, to help them deal more effectively with exchange rate policy decisions aiming at promoting economic growth in the area.