Global oil prices and exchange rate in Zimbabwe: An ARDL approach

Abstract

This study aims to investigate the nexus between the Zimbabwean dollar exchange rate against the United States Dollar (USD) and global oil prices from 1991 to 2021. Secondary time series dataset from 1991 to 2021 was extracted from the World Bank, ZIMSTATS, and Global Macro Trends. The study employed an autoregressive distributed lag (ARDL) bounds testing approach to test for the existence of a long-run relationship between the ZWL/USD exchange rate and global oil price. The ARDL results confirmed that global oil prices are significant in explaining long-run variations in the value of the Zimbabwean currency. The results of the study show that higher and increasing global oil prices are associated with lower and depreciating local currency. Conversely, lower and decreasing global oil prices are associated with higher and appreciating currency. The policy recommendation from the study is that policymakers should reduce overreliance on oil usage by reducing its consumption. Zimbabwe should also switch to alternative sources of energy, particularly solar energy. This helps to reduce the adverse impacts of increasing global oil prices on the exchange rate through the reduction in oil importation.