A Re-Investigation of Selected Macroeconomic Variables’ Response to Oil Price Shock in Nigeria (1981-2015): A VAR Model Approach

  • Ganiyat Adejoke Adesina-Uthman National Open University of Nigeria Ahmadu Bello Way, Victoria Island, Lagos
Keywords: Oil price shock, macroeconomic analysis, Nigeria

Abstract

The effect of the oil price shock on macroeconomic variables cannot be overemphasized. This has prompted some economics research on the implications of oil price on major macroeconomic variables, such as economic growth, inflation, and exchange rate. This study re-investigated the implications of crude oil price shock on some selected macroeconomic variables in Nigeria. The empirical analysis applied the vector autoregressive (VAR) model technique to the annual data on the Nigeria economy for the period 1981-2015. The study revealed that a one-time shock to the price of crude oil in the global oil market will produce a persistent and significant effect on real GDP and unemployment rate in Nigeria; the response of real GDP to oil price shock was persistence over a long term; variation in real GDP over time was as a result of oil price shock; and oil price shocks had negative effects on unemployment in the long and short run, while exchange rate responded to shock with dollar appreciation against the naira. The study thus recommended the need for policymakers to formulate implementable policies on diversification of the productive base of the economy from oil to other sectors, such as agriculture, manufacturing, tourism and services to break the overdependence of the economy on the oil sector, among others.

Author Biography

Ganiyat Adejoke Adesina-Uthman, National Open University of Nigeria Ahmadu Bello Way, Victoria Island, Lagos

Department of Economics, National Open University of Nigeria
Ahmadu Bello Way, Victoria Island, Lagos

References

Aliyu, S.U.R. (2009). Oil price shocks and the macro-economy in Nigeria: A non-linear approach. MPRA Paper No. 18726.

Amano, R. and van Norden, S. (1998). Oil prices and the rise and fall of the US real exchange rate. Journal of International Money and Finance 17:299-316.

Basher, S.A., Haug, AA. and Sadorsky, P. (2012). Oilprices, exchange rates and emerging stock markets. Energy Economics, 34: 227–240.

Chen, S.S. and Chen, H.C. (2007). Oil prices and real exchange rates. Energy Economics, 29(3): 390-404.

Ebinger, C.K. (2014). World oil demand: And then there was none. Brookings Planet Policy, Friday, October 21.

Dibooglu, S. (1996). Real disturbances, relative prices, and purchasing power parity. Journal of Macroeconomics, 18(1): 69–87.

Gounder, R. and Bartleet, M. (2007). Oil price shocks and economic growth: Evidence for Zealand, 1989-2006. Paper at the New Zealand Association of Economist Annual Conference, Christchurch, 27th to 29th June.

Habib M.M. and Kalamova M.M. (2007). Are there oil currencies? The real exchange rate of oil exporting countries. ECB Working Paper, No.839.

Hamilton, J.D. (2009). Causes and consequences of the oil shock of 2007-2008. Brookings Papers on Economic Activity, Spring: 215-261.

Jiménez-Rodríguez, R and Sanchez, M. (2004). Oil price shocks: empirical evidence for some OECD countries. European Central Bank Working Paper No.362.

Matthew A. and Adegboye S. (2014). An analysis of the effect of oil price shock and exchange rate instability on economic growth in Nigeria. Scottish Journal of Art, Social Sciences and Scientific Studies, 1278-2047.

Obioma, B.K. and Eke, C.N. (2015). An Empirical Analysis of Crude Oil Price, Consumer Price Level and Exchange Rate Interaction in Nigeria: A Vector Autoregressive (VAR) Approach. American Journal of Economics, 5(3): 385-393,

Park, J., Ratti, R. (2008). Oil price shocks and stock markets in the US and 13 European countries. Energy Econ. 30: 2587–2608.

Sims, C. (1980). Macroeconomics and reality. Econometrica, 48.

Turhan, I., Hacihasanoglu, E. and Soytas, U. (2012). Oil prices and emerging market exchange rates. Central Bank of the Republic of Turkey Working Paper No.12/01.

Umar, G. and Abdulhakeem, K. (2010). Oil price shocks and Nigerian economy: A vector autoregressive (VAR) model. International Journal of Business and
Management, 5(8).
Published
2017-09-01