Effect of Oil Price Volatility on Exchange Rate Volatilities in the Selected OPEC Countries

This paper aims to evaluate the effects of oil price volatility on real exchange rate volatilities in the the selected OPEC countries. Thus we test the effects of oil price fluctuations on the real exchange rate volatility under monetary model in the 8 selected OPEC countries during for 1982-2009. Accordingly, a regression for model of exchange rate volatility has been specified and estimated based upon employing random effects method in Stata 11 software. The results shows that oil price volatility, GDP volatility, ratio of M2 on total reserve, have Positive and significant effect on exchange rate volatility, but interest rate has negative and significant effect. The implication is that appropriate Foreign Exchange Reserve Fund and strategic policy can adjust volatilities of exchange rates in these countries.