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The effect of crude oil price change and volatility on Nigerian economy

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  • Demachi, Kazue

Abstract

This study analyses the effects of changes in the international oil price and price volatility on the macro-economy of an African oil exporter, Nigeria. Applying the five-variable Structural Vector Auto Regression (SVAR) model to monthly data series from January 1970 to May 2011, impulse response functions are calculated to see the influences among the crude oil price, Nigeria’s exchange rate, money supply (M2), domestic price levels (CPI) and the policy interest rate (Discount Rate). The estimation results suggest that Nigeria’s exchange rate is affected not only by the changes in the international oil price but also by its price volatility. M2 increases as a response to an oil price increase, which suggests that as the international oil price rises there is a huge increase in the money supply into the domestic market from the national oil company and international oil companies, which are the largest suppliers of dollars next to the monetary authority itself.

Suggested Citation

  • Demachi, Kazue, 2012. "The effect of crude oil price change and volatility on Nigerian economy," MPRA Paper 41413, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:41413
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    References listed on IDEAS

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    2. Azeez, Rasheed Oluwaseyi, 2018. "Oil price volatility spillover effects on food prices in Nigeria," MPRA Paper 93188, University Library of Munich, Germany.
    3. Ifeacho Christopher I & Choga Ireen, 2023. "Analysis of the Nature and Determinants of Energy Price Dynamics in Sub-Saharan Africa (SSA)," Studia Universitatis „Vasile Goldis” Arad – Economics Series, Sciendo, vol. 33(2), pages 27-48, June.
    4. Nwosa Philip I. & Ehinomen Chris & Ugwu Ephraim, 2020. "Output Volatility and Government Size in Nigeria," Folia Oeconomica Stetinensia, Sciendo, vol. 20(1), pages 286-301, June.
    5. Ebenezer Olamide & Andrew Maredza & Kanayo Ogujiuba, 2022. "Monetary Policy, External Shocks and Economic Growth Dynamics in East Africa: An S-VAR Model," Sustainability, MDPI, vol. 14(6), pages 1-19, March.
    6. Heidari, Hassan & Babaei Balderlou, Saharnaz, 2014. "بررسی تأثیر نااطمینانی قیمت نفت خام بر رشد بخش صنعت و معدن در ایران کاربردی از مدل‌های تبدیل مارکف [Investigation of the Effect of Crude Oil Price Uncertainty on the Growth of Industry and Mine Sec," MPRA Paper 79228, University Library of Munich, Germany.

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    More about this item

    Keywords

    African oil exporter; Crude oil price; Volatility;
    All these keywords.

    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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