Exchange Rate Volatility and Oil Prices Shocks

Consumption is positively correlated with disposable income, due to higher oil prices a fall in disposable income will decreases consumption and production and adverse impact on growth. If investment decisions are concerned increase in oil prices will increase cost of production and lowers profit margin and investment. This paper seeks to identify the impact of exchange rate volatility and oil prices fluctuations on economic growth in France based on annual data for fourty years. Impact of oil prices and exchange rate volatility on economic growth has been significant. Cointegration technique is applied to check exchange rate volatility has been significant. Engle and Granger cointegration technique applied and the impact of oil prices and exchange rate volatility on economic growth is checked. Engle Granger results indicate that relationship is significant in the long run and its error correction adjustment mechanism (ECM) in short runs is significant and correctly signed for France.