Oil Price Shocks and Monetary Policy Aggregates in Nigeria: A Structural VAR Approach
AbstractStudies have shown that the impact of oil price volatility varies significantly across countries and within the different sectors of a particular economy. The impact vary according to the prevailing state of an economy: whether the economy is a net importer or exporter of oil; the exchange rate regime; monetary policy framework; the vulnerability of the key sectors of the economy and the degree of openness of the economy. In this study, we have used both restricted and unrestricted structural VAR models to decompose the impact of oil price shocks. Using a seven-variable VAR matrix which include monetary policy aggregates, we forecast the impact of a one standard deviation innovation to oil price on inflation rate, money supply, interest rate, government expenditure, GDP per capita growth rate, exchange rate and manufacturing output over a ten-year period. We imposed identification restrictions on the VAR model to identify the structural parameters of the seven equations and show the variance decomposition analysis. The results shows that the second-round effects of oil price shocks may be transmitted to the other sectors of the economy through the government expenditure - inflation rate channels with significant direct impact on the real sector and other monetary aggregates.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 25908.
Date of creation: 01 Jun 2009
Date of revision:
Oil Price Shocks; Monetary Policy; Vector autoregressive model;
Find related papers by JEL classification:
- E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
- C01 - Mathematical and Quantitative Methods - - General - - - Econometrics
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