article · Lafia Journal of Economics and Management Sciences
An examination of selected Organization of the Petroleum Exporting Countries between 1985 and 2022 reveals a non-linear link between oil price movements and exchange rates. Employing dynamic panel threshold regression and tests accounting for cross-sectional dependence and structural breaks, the research establishes an oil price threshold of 4.526 per cent. When oil prices sit below this boundary, real exchange rates decline, whereas prices above it generally cause national currencies to appreciate. In addition, structural breaks critically affect exchange rates with differing impacts in the short and long run. The findings suggest that economies should actively diversify away from petroleum exports to shield their exchange rates from the destabilising consequences of oil prices falling beneath this critical level.
Economies reliant on oil face severe currency volatility when commodity markets swing. Identifying a specific numerical threshold where currency depreciation triggers gives policymakers and financial institutions clearer criteria for risk planning. Demonstrating how price dips weaken currencies underlines the pressing need to diversify revenue sources beyond fossil fuel exports.
This work represents early-stage macroeconomic research rather than a commercial technology. The findings could potentially inform exchange rate forecasting tools and macro-prudential risk models used by central banks, energy traders, or economic policy advisory groups. However, the abstract does not indicate an immediate application pathway or commercialisation mechanism.
AI-generated from the published abstract. Always read the original work before citing.
This study examined the influence of oil price dynamics on the exchange rates in selected Organization of the Petroleum Exporting Countries (OPEC) utilizing a dynamic panel threshold regression model over the period from 1985 to 2022. Various analytical techniques were employed, including the Brock-Durlauf-Chang-Scheinkman (BDS) test for nonlinearity, Cross-Sectional Dependence (CD) tests, a Panel Unit Root Test that accounts for cross-sectional dependence and structural breaks, as well as the Westerlund Error Correction Model (ECM) Panel Cointegration Test. From the result of the study, a threshold effect associated with oil prices was identified, as 4.526%. Specifically, when oil prices dip below these thresholds, the real exchange rate declines. In contrast, when oil prices exceed this threshold, the real exchange rate generally appreciates. Additionally, the results emphasize that structural breaks play a critical role in influencing exchange rates among OPEC member nations, with varying effects in both short and long run. Consequently, the study recommends that real oil prices should ideally not fall below the identified threshold and suggests diversifying the economy to diminish the reliance on oil exports, thereby lessening the adverse effects of changes in oil price on exchange rates.
This page summarises published work. The authoritative version sits with the publisher.
DOI: 10.70118/lajems-10-2-2025-06
Is something wrong with this record? Report it or request removal.
Discussion
Have you built on this work, tried to replicate it, or seen it applied in practice? Share what you know. Verified researchers and MARATTO™ domain experts can open a discussion, and any member can reply. Contributions are reviewed before they appear.
No discussion yet. Open the first thread.
New to MARATTO™? Create a free account.
