Oil-supply news and dynamics of exchange rates in oil-exporting countries

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Abstract

Most sub-Saharan African (SSA) countries have benefited and also suffered from the consequences of oil price fluctuations. The suffering of these nations has reverberated especially from the influencing power of exchange rate volatility, high inflation as well as an adverse impact on other macroeconomic variables. Therefore, this study estimated the magnitude of the effects of oil supply news shocks on the dynamics of exchange rates and also, the impact of exchange rate dynamics on oil supply news shocks in oil-exporting countries of West Africa (WA) countries. We implemented a panel non-linear autoregressive distributed lag (P-NARDL) model. The finding of the study indicates that rising fluctuations in oil prices caused by Organization of the Petroleum Exporting Countries (OPEC) news of oil supply disruption significantly induce exchange rate devaluation. Unambiguously, a 1 percent increase in oil supply news shocks stimulated 1.59432 percent appreciation while the same-size decrease in oil prices led to 0.86397 percent devaluation. These validate asymmetrical presence in exchange rate behaviour concerning the oil market. Also, we found 1.09452 percent devaluation and 0.25371 percent appreciation in the exchange rates of oil-producing African nations following a 1 percent rise and fall in inflation rates indicating a symmetric relationship between inflation rate and exchange rates. Oil-producing countries of WA should utilize foreign exchange (FX) from oil export to acquire capital-intensive projects.

Keywords: Crude Oil Price Shocks, Oil Exporting Countries, Asymmetric Effects, Exchange Rate Dynamics, Panel Non-Linear Autoregressive Distributed Lag Model

Authors’ individual contribution: Conceptualization — D.U.; Methodology — D.U.; Software — D.U., S.E.E., C.C.E., and C.U.N.; Validation — D.U., O.O.O., F.E.O., C.U.N., M.A.O., A.N.T., and M.E.; Formal Analysis — D.U., O.O.O., M.A.O., A.N.T., and M.E.; Investigation — D.U., F.E.O., C.C.E., and C.U.N.; Data Curation — D.U., S.E.E., and M.E.; Writing — D.U., O.O.O., F.E.O., C.C.E., C.U.N., M.A.O., A.N.T., and M.E.; Supervision — D.U., S.E.E., and M.A.O.

Declaration of conflicting interests: The Authors declare that there is no conflict of interest.

JEL Classification: C20, C34, A29

Received: 19.11.2022
Accepted: 04.08.2023
Published online: 07.08.2023

How to cite this paper: Umoru, D., Effiong, S. E., Ovat, O. O., Ofie, F. E., Eleh, C. C., Nwonu, C. U., Obomeghie, M. A., Tizhe, A. N., & Emoabino, M. (2023). Oil-supply news and dynamics of exchange rates in oil-exporting countries. Corporate & Business Strategy Review, 4(3), 88–101. https://doi.org/10.22495/cbsrv4i3art9