Macroeconomic variables response to oil price shocks in Nigeria.

Macroeconomic variables response to oil price shocks in Nigeria.

Author by Dr. Esther Lawal

Journal/Publisher: Journal Of African Contemporary Research . Imo State University

Volume/Edition: 12

Language: English

Pages: 128 - 140

Abstract

The Nigerian economy is highly vulnerable to fluctuations in the international price of crude oil. This is due to the fact that the economy depends majorly (80%) on the income from crude oil for its foreign earnings because oil as a commodity plays a central role in the economic activities of the nation. This study analyzed the dynamic response of macroeconomic variables to oil price shocks in Nigeria from 1985Q1-2018Q4. The data were analyzed using Structural Vector Autoregressive (SVAR) technique to estimate the response of macroeconomic variables to oil price shocks. The result of the impulse response function and variance decomposition analysis showed that output, inflation rate, exchange rate, interest rate, stock prices and unemployment rate significantly respond to oil price shocks in Nigeria. The implication of this is that the Nigerian economy is significantly affected by external shocks. The study, therefore, recommends that effective management of oil wealth such as investment in productive economic activities that would provide employment, drive economic growth is essential in the bid to maintain macroeconomic stability in an oil rich economy like Nigeria.


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