ECONOMIC FUNDAMENTALS AND NOMINAL EXCHANGE RATE IN AFRICAN OIL PRODUCING COUNTRIES: EVIDENCE FROM ASYMMETRIC COINTEGRATION

Abstract

The role of exchange rates is very important in the international market, and the variability of exchange rates, in appreciation or depreciation, is directly connected with a country's economic performance. Exchange rate variations in oil-producing African countries have been too high, resulting in volatilities due to domestic and foreign shocks. High exchange rate volatility may translate into reduced. Several studies on the relationship between economic fundamentals and exchange rates focused more on Africa or country-specific countries, with limited focus on African oil-producing countries using asymmetric cointegration. Therefore, this study examines the relationship between some economic fundamentals and exchange rates in African oil-producing countries. The dynamic panel nonlinear autoregressive distributed lag and linear autoregressive distributed lag were used to investigate the relationship between economic fundamentals and nominal exchange rate (NER). The NARDL result shows that that there is evidence of both short and long-run asymmetric relationship between economic fundamentals and the nominal exchange rate. The study recommended that policymakers in African oilproducing countries should encourage strong and stable currencies that will stabilize each country's economy