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Shocks and volatility transmission between oil price and Nigeria’s exchange rate

Author

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  • Agya Atabani Adi

    (Federal University)

  • Samuel Paabu Adda

    (Federal University)

  • Amadi Kingsley Wobilor

    (Federal University)

Abstract

The study examined shock and volatility transmission between oil price and exchange rate markets using daily data covering the period from 23rd October 2009 to 30th November 2020. The contributions of the paper include (i) implementation of VAR-AGARCH model to capture spillover effect of shock and volatility; (ii) examining the nature of shock impact in oil price and exchange rate market; (iii) adopting of two measured of oil price (WTI and Brent); (iv) employing two measures of the exchange rate (USD/Naira and effective/Naira). The study revealed that past own shocks and volatilities significantly contribute to current volatilities in exchange rate and oil price markets. Also, there is bidirectional shock and volatility spillover between the exchange rate (USD/Naira and effective/Naira) and WTI oil price markets. There were bidirectional shock and volatility spillover between USD/Naira and Brent oil price and unidirectional shock and volatility from Brent oil price to effective exchange rate market. We found asymmetric shocks impacting exchange rates and WTI oil price while symmetric shock was observed in Brent oil price. Including innovation in oil price is essential in exchange rate policy formulation and modelling exchange rate shock and volatility.

Suggested Citation

  • Agya Atabani Adi & Samuel Paabu Adda & Amadi Kingsley Wobilor, 2022. "Shocks and volatility transmission between oil price and Nigeria’s exchange rate," SN Business & Economics, Springer, vol. 2(6), pages 1-17, June.
    • Handle: RePEc:spr:snbeco:v:2:y:2022:i:6:d:10.1007_s43546-022-00228-z
    DOI: 10.1007/s43546-022-00228-z
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    Cited by:

    1. Nsirimovu, Okwuwada, 2023. "Reflecting on the appetite for borrowing and the volatility of crude prices for rapid post-COVID economic recovery initiatives in Nigeria: Implications for Per capita income using a Dynamic ARDL simul," MPRA Paper 119532, University Library of Munich, Germany, revised 20 Dec 2023.
    2. Leila Ben Salem & Montassar Zayati & Ridha Nouira & Christophe Rault, 2024. "Volatility Spillover between Oil Prices and Main Exchange Rates: Evidence from a DCC-GARCH-Connectedness Approach," CESifo Working Paper Series 10989, CESifo.

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    More about this item

    Keywords

    Oil price; Exchange rate; Shock; Volatility transmission; Nigeria economy;
    All these keywords.

    JEL classification:

    • G - Financial Economics
    • G1 - Financial Economics - - General Financial Markets
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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