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Impact of oil price shocks on selected macroeconomic variables in Nigeria

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  • Iwayemi, Akin
  • Fowowe, Babajide
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    Abstract

    The impact of oil price shocks on the macroeconomy has received a great deal of attention since the 1970Â s. Initially, many empirical studies found a significant negative effect between oil price shocks and GDP but more recently, empirical studies have reported an insignificant relationship between oil shocks and the macroeconomy. A key feature of existing research is that it applies predominantly to advanced, oil-importing countries. For oil-exporting countries, different conclusions are expected but this can only be ascertained empirically. This study conducts an empirical analysis of the effects of oil price shocks on a developing country oil-exporter--Nigeria. Our findings showed that oil price shocks do not have a major impact on most macroeconomic variables in Nigeria. The results of the Granger-causality tests, impulse response functions, and variance decomposition analysis all showed that different measures of linear and positive oil shocks have not caused output, government expenditure, inflation, and the real exchange rate. The tests support the existence of asymmetric effects of oil price shocks because we find that negative oil shocks significantly cause output and the real exchange rate.

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    Bibliographic Info

    Article provided by Elsevier in its journal Energy Policy.

    Volume (Year): 39 (2011)
    Issue (Month): 2 (February)
    Pages: 603-612

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    Handle: RePEc:eee:enepol:v:39:y:2011:i:2:p:603-612

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    Web page: http://www.elsevier.com/locate/enpol

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    Keywords: Oil price shocks Nonlinear models Nigeria;

    References

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    Cited by:
    1. Zahid Muhammad & Hassan Suleiman & Reza Kouhy, 2011. "Exploring oil price – exchange rate nexus for Nigeria," FIW Working Paper series 071, FIW.
    2. Dizaji, S.F., 2012. "The effects of oil shocks on government expenditures and government revenues nexus in Iran (as a developing oil-export based economy)," ISS Working Papers - General Series 540, International Institute of Social Studies of Erasmus University Rotterdam (ISS), The Hague.
    3. Salisu, Afees A. & Mobolaji, Hakeem, 2013. "Modeling returns and volatility transmission between oil price and US–Nigeria exchange rate," Energy Economics, Elsevier, vol. 39(C), pages 169-176.
    4. Joseph Ayoola Omojolaibi, 2013. "Does Volatility in Crude Oil Price Precipitate Macroeconomic Performance in Nigeria?," International Journal of Energy Economics and Policy, Econjournals, vol. 3(2), pages 143-152.
    5. Lin, Boqiang & Wesseh, Presley K. & Appiah, Michael Owusu, 2014. "Oil price fluctuation, volatility spillover and the Ghanaian equity market: Implication for portfolio management and hedging effectiveness," Energy Economics, Elsevier, vol. 42(C), pages 172-182.
    6. Mohammad Reza Farzanegan, 2012. "Does the Iranian oil supply matter for the oil prices?," MAGKS Papers on Economics 201232, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    7. Emami, Karim & Adibpour, Mehdi, 2012. "Oil income shocks and economic growth in Iran," Economic Modelling, Elsevier, vol. 29(5), pages 1774-1779.
    8. Uddin, Gazi Salah & Tiwari, Aviral Kumar & Arouri, Mohamed & Teulon, Frédéric, 2013. "On the relationship between oil price and exchange rates: A wavelet analysis," Economic Modelling, Elsevier, vol. 35(C), pages 502-507.
    9. Ali Ahmed, Huson Joher & Wadud, I.K.M. Mokhtarul, 2011. "Role of oil price shocks on macroeconomic activities: An SVAR approach to the Malaysian economy and monetary responses," Energy Policy, Elsevier, vol. 39(12), pages 8062-8069.
    10. Dizaji, S.F. & van Bergeijk, P.A.G., 2012. "Early phase success and long run failure of economic sanctions. With an application to Iran," ISS Working Papers - General Series 544, International Institute of Social Studies of Erasmus University Rotterdam (ISS), The Hague.
    11. Tiwari, Aviral Kumar & Mutascu, Mihai Ioan & Albulescu, Claudiu Tiberiu, 2013. "The influence of the international oil prices on the real effective exchange rate in Romania in a wavelet transform framework," Energy Economics, Elsevier, vol. 40(C), pages 714-733.
    12. Ibrahim, Mansor H. & Ahmed, Huson Joher Ali, 2014. "Permanent and transitory oil volatility and aggregate investment in Malaysia," Energy Policy, Elsevier, vol. 67(C), pages 552-563.

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