Aliyu, Shehu Usman Rano (2009): Impact of Oil Price Shock and Exchange Rate Volatility on Economic Growth in Nigeria: An Empirical Investigation. Published in: Research Journal of Internatıonal Studıes , Vol. Issue, No. Issue 11 (8. July 2009): pp. 4-15.
Download (761kB) | Preview
This paper seeks to assess the impact of oil price shock and real exchange rate volatility on real economic growth in Nigeria on the basis of quarterly data from 1986Q1 to 2007Q4. The empirical analysis starts by analyzing the time series properties of the data which is followed by examining the nature of causality among the variables. Furthermore, the Johansen VAR-based cointegration technique is applied to examine the sensitivity of real economic growth to changes in oil prices and real exchange rate volatility in the long-run while the short run dynamics was checked using a vector error correction model. Results from ADF and PP tests show evidence of unit root in the data and Granger pairwise causality test revealed unidirectional causality from oil prices to real GDP and bidirectional causality from real exchange rate to real GDP and vice versa. Findings further show that oil price shock and appreciation in the level of exchange rate exert positive impact on real economic growth in Nigeria. The paper recommends greater diversification of the economy through investment in key productive sectors of the economy to guard against the vicissitude of oil price shock and exchange rate volatility.
|Item Type:||MPRA Paper|
|Original Title:||Impact of Oil Price Shock and Exchange Rate Volatility on Economic Growth in Nigeria: An Empirical Investigation|
|Keywords:||Cointegration, Granger Causality, Oil price shock, Exchange Rate Volatility, VECM|
|Subjects:||F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance > F40 - General
F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance > F41 - Open Economy Macroeconomics
F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance > F43 - Economic Growth of Open Economies
|Depositing User:||Usman Rano Aliyu|
|Date Deposited:||18. Jul 2009 11:43|
|Last Modified:||22. Apr 2015 09:36|
 Bachetta, Philippe / van Wincoop, Eric (2000) “Does Exchange Rate Stability Increase Trade and Welfare?” American Economic Review 90, 1093-1109.
 Balke, Nathan S., Stephen P. A. Brown, and Mine Y¨ucel (1999) “Oil Price Shocks and the U.S. Economy: Where Does the Asymmetry Originate?” Working paper, Federal Reserve Bank of Dallas.
 Bernanke, B. S. (1983) “Irreversibility, Uncertainty, and Cyclical Investment”, Quarterly Journal of Economics, 98, 85–106.
 Chmelarova, Viera / Schnabl, Gunther (2006) “Exchange Rate Stabilization in Developed and Underdeveloped Capital Markets”, European Central Bank Working Paper 636.
 De Grauwe, Paul and Gunther Schnabl (2005a) “Nominal versus Real Convergence with Respect to EMU Accession – EMU Entry Scenarios for the New Member States”’ Kyklos 58, 4, 481-499.
 De Grauwe, Paul / Schnabl, Gunther (2005b) “Exchange Rate Regime and Macroeconomic Performance in Central and Eastern Europe”, CESifo Working Paper 1182.
 Edwards, Sebastian / Levy-Yeyati, Eduardo(2003) “Flexible Exchange Rates as Shock Absorbers”, NBER Working Paper.
 Eichengreen, Barry / Leblang, David (2003) “Exchange Rates and Cohesion: Historical Perspectives and Political-Economy Considerations”. Journal of Common Market Studies 41, 797–822.
 Engle, Robert F. and C. W. J. Granger (1987) “Co-integration and Error Correction: Representation, Estimation, and Testing,” Econometrica, 55, 251–276.
 European Commission (1990) “One Market, One Money: An Evaluation of the Potential Benefits and Costs of Forming an Economic and Monetary Union”, European Economy 44.
 Fischer, Stanley (2001) “Exchange Rate Regimes: Is the Bipolar View Correct”? Journal of Economic Perspectives 15, 2, 3–24.
 Frankel, Jeffrey / Rose, Andrew (2002) “An Estimate of the Effect of Common Currencies on Trade and Income”, Quarterly Journal of Economics 117, 437–66.
 Ferderer, J. (1996) "Oil price Volatility and the Macroeconomy", Journal of Macroeconomics, 18, 1–26.
 Friedman, Milton (1953) “The Case for Flexible Exchange Rates” In Essays of Positive Economics, ed. by Milton Friedman (Chicago: University of Chicago Press).
 Ghosh, Atish / Gulde, Anne-Marie / Wolf, Holger (2003) “Exchange Rate Regimes: Choices and Consequences” (Cambridge, Massachusetts: MIT Press).
 Gounder, R. and M. Bartleet (2007) “Oil price shocks and economic growth: Evidence for New Zealand, 1989-2006”, Paper presented at the New Zealand Association of Economist Annual Conference, Christchurch, 27th to 29th June.
 Greenspan, Alan (2004) cited in “Oil and the Macroeconomy Since the 1970s” by Barsky, R. and L. Kilian (2004), http://.www.cepr.org/pubs/dps/DP4496.asp
 Hamilton, James D. (1983) “Oil and the Macroeconomy since World War II”, Journal of Political Economy, 91, pp. 228-248.
 ________________ (1996) “This is what Happened to the Oil Price-Macroeconomy Relationship”, Journal of Monetary Economics, 38, pp. 215-220.
 ____ (1997) "Comment on U.S. oil consumption, oil prices, and the Macroeconomy", Empirical Economics, 22, 153–156.
 _______________ (2000) “What is an Oil Shock?” Working paper, UCSD, http://weber.ucsd.edu/.jhamilto.
 Hooker, Mark A. (1994) "What Happened to the Oil Price-Macroeconomy”, Journal of Econometrics 31(3): 307-27.
 Hoover, Kevin D., and Stephen J. Perez (1994) “Post Hoc Ergo Propter Once More: An Evaluation of Does Monetary Policy Matter?” in the Spirit of James Tobin, Journal of Monetary Economics, 34, pp. 89-99.
 International Monetary Fund (1984) “Exchange Rate Variability and World Trade”, IMF Occasional Paper 28.
 Jiménez-Rodríguez, R. and Sánchez, M. (2004) "Oil price shocks and real GDP growth: empirical evidence for some OECD countries." European Central Bank Working Paper No. 362.
 ____ (2005) "Oil price shocks and real GDP growth: empirical evidence from some OECD countries." Applied Economics, 37, 201–228.
 Jin, Guo (2008) “The Impact of Oil Price Shock and Exchange Rate Volatility on Economic Growth: A Comparative Analysis for Russia Japan and China”, Research Journal of International Studies, Issue 8, pp. 98-111.
 Johansen, S., (1988) “Statistical Analysis of Cointegration Vectors”, Journal of Economic Dynamics and Control, Vol. 2 (June-September), pp. 231-54.
 Johansen, Soren, Juselius, Katarina (1990), “Maximum Likelihood Estimation and Inferences on Cointegration – With Application to the Demand for Money”, Oxford Bulletin of Economics and Statistics, Vol. 52, No. 2, pp. 169-210
 Johansen, S. (1997) “Likelihood-Based Interference in Cointegrated Vector Autoregressive Models”, Oxford, Oxford University Press.
 Kawai, Masahiro (2006) “Toward a Regional Exchange-Rate Regime in East Asia”, Mimeo.
 Lee, K. and Ni, S. (2002) "On the dynamic effects of oil price shocks: A study using industry level data", Journal of Monetary Economics, 49, 823–852.
 Lee, K., S. Ni, and R. Ratti, (1995) “Oil shocks and the Macroeconomy: The role of price variability,” The Energy Journal, 16, 39 56.
 McKillop, A. (2004) “Oil Prices, Economic Growth and World Oil Demand”, Middle East Economic Survey, VOL. XLVII No 35.
 McKinnon, Ronald (1963) “Optimum Currency Areas”, American Economic Review 53, 717– 725.
 McKinnon, Ronald / Schnabl, Gunther (2004a) “The East Asian Dollar Standard, Fear of Floating, and Original Sin”, Review of Development Economics 8, 3, 331–360.
 McKinnon, Ronald / Schnabl, Gunther (2004b) “A Return to Soft Dollar Pegging in East Asia? Mitigating Conflicted Virtue”, International Finance 7, 2, 169-201.
 McKinnon, Ronald / Schnabl, Gunther (2006) China’s Exchange Rate and International Adjustment in Wages, Prices, and Interest Rates: Japan Déjà Vu? CESifo Studies 52, 2, 276-303.
 Meade, James (1951) “The Theory of International Economic Policy” (London: Oxford University Press).
 Mork, Knut A., (1989) “Oil and the Macroeconomy when prices go up and down: An extension of Hamilton's results”, Journal of Political Economy, 91, 740-744.
 Mundell, Robert (1961) “A Theory of Optimal Currency Areas”, American Economic Review 51, 4, 657–65.
 Mundell, Robert (1973a) “A Plan for a European Currency”, in The Economics of Common Currencies, ed. by Harry Johnson and Alexander Swoboda (London: Allen and Unwin).
 Mundell, Robert (1973b) “Uncommon Arguments for Common Currencies”, In The Economics of Common Currencies, ed. by Harry Johnson and Alexander Swoboda (London: Allen and Unwin).
 Mundell, Robert (1995) “Exchange Rate Systems and Economic Growth”, Rivista de Politica Economica 85, 1–36.
 Schnabl, Gunther (2006a) “The Russian Currency Basket: Recent Developments in Russia’s Exchange Rate Policies and the Role of the Euro”, Intereconomics 40, 3, 135-141.
 Schnabl, Gunther (2006b) “Capital Markets and Exchange Rate Stabilization in East Asia – Diversifying Risk Based on Currency Baskets”, HWWI Research Paper 2-1 (2006).
 Schnabl, Gunther (2007) “Exchange Rate Volatility and Growth in Small Open Economies at the EMU Periphery”, Working Paper Series, No. 773 / July, http://www.ecb.int, http://ssrn.com/abstract_id=955250.