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Oil price distortions and their short- and long-run impacts on the Nigerian economy

  • Chuku, Chuku
  • Effiong, Ekpeno
  • Sam, Ndifreke

Given its economic structure, high energy intensity and simultaneity as an oil importing and exporting economy, Nigeria stands out as a special case to study the oil-price-macroeconomy relation. This paper studies the linear and asymmetric impacts of oil price shocks on the Nigerian economy between1970Q1and 2008Q4. Using the vector error correction mechanism and the Granger causality test, we investigate the long-run and short-run impacts of oil price shocks on the supply-side of the economy, wealth transfer effect, inflation effect and real balance effect. Overall, the results from the linear model show that oil price shocks are not a major determinant of macroeconomic activity in Nigeria, and macroeconomic activities in Nigeria do not Granger cause world oil prices. Further, the results from our non-linear specification reveals that the impact of world oil price shocks on the Nigerian economy are asymmetric. Hence, the common practise of national development planning premised on forecasts of international oil prices should be de-emphasized in Nigeria.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 24434.

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Date of creation: 15 Aug 2010
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Handle: RePEc:pra:mprapa:24434
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