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

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 threeyear
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.