The Effect of Exchange Rates and World Crude Oil Prices on Inflation: Evidence from Emerging Economies

Abstract

This study examines the effect of exchange rates and crude oil prices on inflation in emerging economies using data from 2000 to 2018. The method used in this research is fixed effect least square dummy variable, by grouping the sample into four different country groups: Asia, Africa, America, and Europe. The findings of this study reveal a significant effect of the exchange rates and crude oil prices on inflation in emerging economies of different regions (Asia, Africa, Europe, and America), as the economies in these different regions heavily rely on imports throughout the period. Variations in exchange rates and volatility in crude oil prices wield considerable pressure on domestic inflation rates with varying effects on each region's emerging economies. The study sheds light on the role of interest rates and foreign direct investment in moderating inflationary pressures highlighting the importance of wide-ranging monetary policies in vindicating economic susceptibilities.