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


  • Demachi, Kazue


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

    1. Hamilton, James D., 1996. "This is what happened to the oil price-macroeconomy relationship," Journal of Monetary Economics, Elsevier, vol. 38(2), pages 215-220, October.
    2. Olugbenga Onafowora & Oluwole Owoye, 2008. "Exchange rate volatility and export growth in Nigeria," Applied Economics, Taylor & Francis Journals, vol. 40(12), pages 1547-1556.
    3. Kim, Soyoung & Roubini, Nouriel, 2000. "Exchange rate anomalies in the industrial countries: A solution with a structural VAR approach," Journal of Monetary Economics, Elsevier, vol. 45(3), pages 561-586, June.
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    5. Budina, Nina & Pang, Gaobo & van Wijnbergen, Sweder, 2007. "Nigeria's growth record : Dutch disease or debt overhang ?," Policy Research Working Paper Series 4256, The World Bank.
    6. Cuddington, John, 1989. "Commodity Export Booms in Developing Countries," World Bank Research Observer, World Bank Group, vol. 4(2), pages 143-165, July.
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    8. 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.
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    10. Lutz Kilian, 2009. "Not All Oil Price Shocks Are Alike: Disentangling Demand and Supply Shocks in the Crude Oil Market," American Economic Review, American Economic Association, vol. 99(3), pages 1053-1069, June.
    11. Hamilton, James D., 2003. "What is an oil shock?," Journal of Econometrics, Elsevier, vol. 113(2), pages 363-398, April.
    12. Corden, W Max & Neary, J Peter, 1982. "Booming Sector and De-Industrialisation in a Small Open Economy," Economic Journal, Royal Economic Society, vol. 92(368), pages 825-848, December.
    13. Apergis, Nicholas & Miller, Stephen M., 2009. "Do structural oil-market shocks affect stock prices?," Energy Economics, Elsevier, vol. 31(4), pages 569-575, July.
    14. Peter Ferderer, J., 1996. "Oil price volatility and the macroeconomy," Journal of Macroeconomics, Elsevier, vol. 18(1), pages 1-26.
    15. Paul Collier & Anke Hoeffler, 2004. "Greed and grievance in civil war," Oxford Economic Papers, Oxford University Press, vol. 56(4), pages 563-595, October.
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    Cited by:

    1. Heidari, Hassan & Babaei Balderlou, Saharnaz & Ebrahimi Torki, Mahyar, 2016. "بررسی اثرگذاری واردات کالاهای مصرفی، واسطه‌ای و سرمایه‌ای در روند انتقال نوسانات قیمت نفت خام به بخش صنعت و معدن در ایران
      [Effects of the Import of Consumption, Intermediate and Capital Goods on Tr
      ," MPRA Paper 79236, University Library of Munich, Germany.

    More about this item


    African oil exporter; Crude oil price; Volatility;

    JEL classification:

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

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