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Disaggregated Inflation and Asymmetric Oil Price Pass-Through in Nigeria

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  • Tersoo Shimonkabir Shitile

    (Department of Economics, Central Bank of Nigeria, Nile University of Nigeria, Nigeria,)

  • Nuruddeen Usman

    (Department of Monetary Policy, Central Bank of Nigeria, Nigeria.)

Abstract

The oil price inflation relationship has continued to significantly feature in the macroeconomic debate, a situation that is guaranteed by nineteen oil market disruptions experienced by the world over the last forty years (Verleger, 2019). The debate on the dynamic behavior between oil price and domestic inflation is an ongoing process and recent literature indicated that the relationship shows non-linearities, which could have some implication for monetary policymaking. We estimate NARDL models of the link between oil price and inflation decomposed into CPI sub-indices of food, core, other energy and transport and find support for long-run asymmetry in relation to oil price shocks as well as incomplete pass-through of oil price to inflation. Our results suggest that it takes within 4 - 8 quarters for the disaggregated inflation to converge to its long-run equilibrium after a negative or positive unitary oil price shock. Hence, we conclude that there is the need to boost domestic oil refining capacity and fostering of competition in the domestic market as well as unlocking investment in other bio-fuels and other low-cost energy products to reduce energy imports in Nigeria.

Suggested Citation

  • Tersoo Shimonkabir Shitile & Nuruddeen Usman, 2020. "Disaggregated Inflation and Asymmetric Oil Price Pass-Through in Nigeria," International Journal of Energy Economics and Policy, Econjournals, vol. 10(1), pages 255-264.
    • Handle: RePEc:eco:journ2:2020-01-37
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    Cited by:

    1. Patricks Ogiji & Tersoo Shimonkabir Shitile & Nuruddeen Usman, 2022. "Estimating asymmetries in monetary policy reaction function: an oil price augmented Taylor type rule for Nigeria under unconventional regime," Economic Change and Restructuring, Springer, vol. 55(3), pages 1655-1672, August.
    2. Pradeep, Siddhartha, 2022. "Impact of diesel price reforms on asymmetricity of oil price pass-through to inflation: Indian perspective," The Journal of Economic Asymmetries, Elsevier, vol. 26(C).
    3. Khatai Aliyev & Sugra Humbatova & Natig Hajiyev Gadim-Oglu, 2023. "How Oil Price Changes Affect Inflation in an Oil-Exporting Country: Evidence from Azerbaijan," Sustainability, MDPI, vol. 15(7), pages 1-11, March.
    4. Zafar Ahmad Sultan & Tarek Tawfek Yousef Alkhateeb & Mahmoud Mohamed Fawaz, 2020. "Empirical Investigation of Relationship between Oil Price and Inflation: The case of India," International Journal of Energy Economics and Policy, Econjournals, vol. 10(3), pages 90-94.
    5. D. O. Olayungbo & T. A. Ojeyinka, 2022. "Crude oil prices pass-through to retail petroleum product prices in Nigeria: evidence from hidden cointegration approach," Economic Change and Restructuring, Springer, vol. 55(2), pages 951-972, May.

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    More about this item

    Keywords

    Oil price shocks; Inflation; NARDL model; Asymmetric pass through; Cointegration;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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