Oil Price Fluctuation, Monetary Policy and Output Growth in Nigeria

Abstract

This study examines the dynamic relationship among Oil Price Fluctuation, Monetary Policy and Output Growth in Nigeria between the periods of 1986 to 2019. Time series data was used for the analysis and Vector Autoregression Model was also employed in this study. The estimation of the VAR showed that Gross Domestic Product growth rate has a negative response to the shocks of foreign interest rate, prime lending rate, real effective exchange rate and output gap but has a positive response to the shocks of oil price volatility and money supply. The result also showed that foreign interest rate has a positive response to real effective exchange rate and a negative response to Oil Price Volatility, Money Supply, Prime Lending Rate and Output Gap. The shocks to the money supply and real effective exchange rate have a positive effect on oil price volatility, whereas the output gap has a negative effect. The study concluded that output gap has a positive response to the shocks of gross domestic product growth rate and prime lending rate but a negative response to the shock of real effective exchange rate and asymmetric response to the shocks of money supply, foreign interest rate and oil price volatility.

Keywords: Oil Price Volatility, Monetary Policy, Output Growth, Vector Autoregressive Model, Unit Root Test

DOI: 10.7176/JESD/12-24-06

Publication date: December 31^st 2021