Oil Price Shocks, Exchange Rate Volatility and Private Consumption in MINT Countries
Oil Price Shocks, Exchange Rate Volatility and Private Consumption in MINT Countries

Summary/Abstract: This study examined the impact of oil price shocks and exchange rate volatility on private consumption for the MINT countries using data between 1986 and 2016. The study was built on an adjusted theoretical framework which merged the Permanent income hypothesis and life cycle hypothesis. Transitory incomes were considered as positive and negative oil price shocks while permanent income were taken as three year moving average of GDP per capita. It was observed that exchange rates clustered and were volatile. The Panel ARDL model was estimated using the Pooled Mean Group (PMG) Estimator. This study revealed that private consumption behaviour of the MINT economies converged in the long run despite noticeable short run differences. Exchange rate volatility was found to be insignificant in determining the long run private consumption in the asymmetric model. However, findings suggested that sudden temporary surge and decline in oil price inversely affected private consumption while permanent income had elastic relationship (elasticity value of 1.13) with private consumption. The study recommended a better management of transitory oil price shocks to improve private consumption.

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