Exchange Rate Dynamics: Evidence From Major Sub-Saharan Africa Oil-Exporting Countries
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Date
2019-11
Authors
Idris Abdulqadir Abdullahi
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Publisher
Universiti Sains Malaysia
Abstract
This study investigates the exchange rate dynamics in the selected 15 major oil-exporting sub-Saharan African countries namely, Angola, Cameroon, Chad, Congo Republic, Congo Democratic People Republic, Cote d'Ivoire, Equatorial Guinea, Gabon, Ghana, Malawi, Niger Republic, Nigeria, South Africa, Sudan, and Zambia. The working definition of exchange rate dynamic drawn from exchange rates economic related problems such as exchange rate fluctuations, exchange rate devaluation, and exchange rate pass-through. The findings from the first objective reveal evidence of a long-run relationship between the real exchange rate and macroeconomic variables in the selected countries. Nevertheless, the study also explores the dynamics of real exchange rate fluctuations and exchange rate fundamentals using pooled mean group, mean group, and fixed dynamic effect models. The results revealed evidence that real exchange rate fluctuations have a significant influence on the real exchange rate fundamentals, namely, terms of trade, trade openness, foreign direct investment, and government expenditure. The second objective of the study examined the effects of exchange rate devaluations on trade balances for the selected major oil-exporting countries using linear and nonlinear autoregressive distributed lag bounds testing and ECM. The findings from linear adjustments using the bounds testing and error correction model revealed evidence of the short-run effect of exchange rate devaluation on trade balances in Ghana, Niger Republic, Nigeria, and South Africa while the long-run effect of devaluation in Chad, Gabon, Ghana, and the Niger Republic, respectively. However, when the analysis differentiated the real appreciation from the real depreciation using partial sum concept and nonlinearity in the linear adjustment process, the results revealed strong evidence of asymmetric effect of devaluation on trade balances in ten countries namely; Angola, Cameroon, Congo DPR, Cote d'Ivoire, Equatorial Guinea, Gabon, Ghana, Niger Republic, Nigeria and South Africa, respectively. Besides, the findings showed overwhelming support for the J-curve phenomenon in these ten major oil-exporting countries. The third objective of the study investigated an optimal inflation target for an appropriate exchange rate regime in SSA using panel threshold-effect test, and dynamic threshold regression. The result revealed a significant threshold-effect of 14.47% for an appropriate inflation target. Furthermore, the objective also explores the exchange rate pass-through on consumer prices. The result also revealed a significant threshold-effect of 14.47% for consumer prices. Nevertheless, the objective further examined the exchange rate pass-through on employees’ wages. The findings revealed a significant threshold-effect of 15.12% for an employee’s wages. The policymakers in the SSA region should pay more attention to the foreign exchange market developments and diversify their economy from oil dependence.
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Social sciences