A Re-Investigation of Selected Macroeconomic Variables’ Response to Oil Price Shock in Nigeria (1981-2015): A VAR Model Approach
Abstract
The effect of the oil price shock on macroeconomic variables cannot be overemphasized. This has prompted some economics research on the implications of oil price on major macroeconomic variables, such as economic growth, inflation, and exchange rate. This study re-investigated the implications of crude oil price shock on some selected macroeconomic variables in Nigeria. The empirical analysis applied the vector autoregressive (VAR) model technique to the annual data on the Nigeria economy for the period 1981-2015. The study revealed that a one-time shock to the price of crude oil in the global oil market will produce a persistent and significant effect on real GDP and unemployment rate in Nigeria; the response of real GDP to oil price shock was persistence over a long term; variation in real GDP over time was as a result of oil price shock; and oil price shocks had negative effects on unemployment in the long and short run, while exchange rate responded to shock with dollar appreciation against the naira. The study thus recommended the need for policymakers to formulate implementable policies on diversification of the productive base of the economy from oil to other sectors, such as agriculture, manufacturing, tourism and services to break the overdependence of the economy on the oil sector, among others.
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