Oil Price, Monetary Policy and Macroeconomic Varaibles in Africa.

Abstract

Oil price fluctuations significantly affect African economies, influencing growth, inflation, exchange rates, and investment, with effects differing between net oil exporters and importers due to structural and institutional variations. This study examines the relationship among oil price, monetary policy, and macroeconomic variables in African countries from 1990Q1 to 2023Q4, using data from the World Energy Information, IMF, and World Bank, analyzed via descriptive statistics, Panel ARDL, EGARCH, Panel SVAR, and Granger causality tests. Results show that oil prices are volatile and exert asymmetric effects on monetary and macroeconomic variables. In net oil exporters, positive shocks trigger significant positive responses, while negative shocks are weaker; the opposite pattern is observed in net oil importers. Long-run co-movement exists among oil price, monetary policy, and macroeconomic variables, with unidirectional causality from oil price to these variables and bi-directional causality with output growth and investment. The study concludes that oil price fluctuations exert significant, asymmetric, and persistent effects on monetary policy and macroeconomic variables, with impacts differing between net oil exporters and importers, highlighting the importance of incorporating oil price dynamics in economic planning and policy formulation. The study recommends monitoring global oil prices in policy formulation and pursuing economic diversification to reduce vulnerability to oil price shocks