Oil Price Shocks and Variations in Macroeconomic Variables in Nigeria

Abstract

The study was an evaluation of the impact of oil price fluctuations on specific macroeconomic variables in Nigeria for the period, 1981-2017. This was examined to establish the innovations oil price will caused on some selected macroeconomic variables such as government revenue, government expenditure, money supply, inflation, real gross domestic product and unemployment. Using results from impulse responses and variance decompositions from a VAR, the result showed that oil price fluctuations largely accounted for the variations in six out of seven macroeconomic variables namely government revenue (GREV), government expenditure (GEXP), money supply (MS2), real gross domestic product (RGDP) and unemployment (UEMP) while its impact on inflation (INF) was found to be insignificant thus, providing evidence that oil price is not inflationary in an open economy such as Nigeria. The result of the impulse response function (IRF) also revealed that aside from inflation which had a negative response to oil shock, all other six variables such as government revenue, government expenditure, money supply, real gross domestic product and unemployment had a positive significant response to oil shock throughout the 10^th quarters.From the empirical investigation, it can be concluded that a combination of fiscal and monetary policies could provide effective instruments for the stabilization of the economy after an oil shock.

DOI: 10.7176/JETP/9-5-01

Publication date:June 30^th 2019