The Effects of Oil Price Volatility on the Sudanese Economy

Abstract

After the oil exploitation in 1999, Sudan has relied primarily on oil revenues, which rendered its economy highly vulnerable to the international oil price shocks. This study examines the dynamic impact of crude oil price fluctuations on the key macroeconomic variables in Sudan, using quarterly data over 1999:Q4–2009:Q4. The study employs impulse response functions and variance decompositions techniques based on unrestricted the vector autoregressive approach. The empirical results reveal that oil price shocks have significant effects on the main macroeconomic variables such as, real GDP, inflation and exchange rate. Moreover, the study found an evidence of asymmetry relationship between oil prices changes and macro variables.

Keywords: Oil price shocks, VAR, impulse response functions, Sudan economy