In another study by Combes Kinda and Plane

In another study by Combes, Kinda, and Plane (2012) on the relationship among capital flows, exchange rate flexibility and the real exchange rate in developing countries using panel cointegration techniques, they order paricalcitol found that public and private flows are associated with a real exchange rate appreciation and using de facto measure of exchange rate flexibility- the study found that a more flexible exchange rate helps to dampen appreciation of the real exchange rate stemming from capital inflows. Rabanal and Tuesta (2013) examined the relationship between nontradable goods and the real exchange rate and found that the relationship between tradable and nontradable goods is the key to understand real exchange rate volatility. Therefore, the study further showed that nontradable sector technology shocks explain about one third of real exchange rate volatility. Abubaker (2016) examined the relationship between consumption and money uncertainty at the zero lower bound with emphasis on the 2008 financial crisis. The study found that consumption uncertainty declines; and real money uncertainty increases significantly when the economy is constrained by the zero lower bound. Furthermore, Alagidede and Ibrahim (2016) examined the causes and effects of exchange rate volatility on economic growth in Ghana and found that shocks to exchange rate are mean reverting, misalignments tend to correct very sluggishly, with painful consequences in the short-run as economic agents recalibrate their consumption and investment choices. Also, excessive volatility is found to be detrimental to economic growth in Ghana. In summary, most of the studies reviewed centered on the relationship between exchange rate volatility and macroeconomic variables but with a total neglect of private consumption. Apart from this, the methodology employed by most of these studies were inappropriate (see Azeez, Kolapo, and Ajayi (2012) and Lloyd and osinubi, 2009). This study therefore examine the empirical relationship between exchange rate volatility and private consumption in Sub-Saharan African (SSA) countries using panel data analysis and the exchange rate volatility series is also generated using GARCH (1, 1) approach.
Methodology This paper employed dynamic panel model estimator as propounded by Arellano and Bover (1995) and fully developed in Blundell and Bond (1998) to examine the relationship between exchange rate volatility and private consumption in sub-Saharan African countries. In order to achieve this, a framework dynamic panel regression model to capture the relationship between exchange rate volatility (EV) and private consumption (pc) is specified as follows: In Eq. (1) above, represents the regress and for country i over period t; entails the lagged value of dependent variable for country i over period t; denotes exchange rate volatility for country i over period t; is the other regressors included in the model as control variables for country i over period t and j is the number of included control variables. A country specific fixed effect is assumed for the disturbance term as follows:where represents error term. It entails , which represents country-specific fixed effects that are time invariant, meanwhile, is assumed to be independent and normally distributed with zero (0) mean and constant variance both over time and across countries, that is, . In order to analyse the empirical relationship between exchange rate volatility and private consumption, as earlier stated the study uses a dynamic panel approach with the system-GMM estimator. In dynamic panel, the inclusion of a lagged dependent variable as an independent variable violates the orthogonality assumption. This is due to the fact that the lagged dependent variable () depends on , which is a function of . Since , absolutely . As a result of this correlation, dynamic panel data estimation suffers from bias which disappears only as t tends to infinity. To get rid of the country-specific effect, Eq. (1) can be differenced as follows: