American Journal of Theoretical and Applied Statistics

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Modeling the Impact of Crude Oil Price Shocks on Some Macroeconomic Variables in Nigeria Using Garch and VAR Models

Received: 16 July 2015    Accepted: 24 July 2015    Published: 19 August 2015
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Abstract

This study investigated the impact of crude oil shocks (COP) on exchange rate (EXCHR), external reserves (EXRS), gross domestic product (GDP), inflation rate (INFL), international trade (INTR) and money supply (MSUP) in Nigeria with a quarterly data from 2000 to 2014 using GARCH and VAR models. From the analysis, all the variables were stationary at first difference with p-value less than 0.05. The presence of heteroscedasticity was found in exchange rate with most of its coefficient models being significant at 5% level and the forecasting model for exchange rate is GARCH (2, 1). Crude oil shocks did not pose significant inflationary threat to the Nigerian economy in the short run; rather, it improves the level of gross domestic product. However, external reserves and international trade were significantly affected due to the recent fall in crude oil export. Oil shocks also positively affected money supply showing that monetary policy response to oil price changes; at the same time, money supply did affect GDP. These show that a diversified economy is really needed

DOI 10.11648/j.ajtas.20150405.16
Published in American Journal of Theoretical and Applied Statistics (Volume 4, Issue 5, September 2015)
Page(s) 359-367
Creative Commons

This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.

Copyright

Copyright © The Author(s), 2024. Published by Science Publishing Group

Keywords

Crude Oil, Macroeconomic Variables, GARCH, VAR and IRF

References
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[4] Bernard Okumagba (2014) “Falling Crude Oil Prices and Nigeria’s Response”. The Guardian Newspaper December 29, 2014.
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[8] Eltony Nagy M. (1999) “Oil Price fluctuations and their Impact on the Macroeconomic Variables of Kuwait: A Case Study Using VAR Model for Kuwait” No. 6, 14.
[9] Engle R. F. (1982) “Autoregressive Conditional Heteroskedadticity with Estimates of the Variance of UK Inflation”. Econometrica, Vol. 50, No. 4, PP. 987-1008.
[10] Gordon Robert J. (1998) “Supply Shocks and Monetary Policy Revisited”. American Economic Review. May, 74(2): 38-43.
[11] Leykun Getaneh (2012) “Forecasting of Petroleum Oil Import Prices by Garch Models: The Case of Ethiopia”. Pg 1-10
[12] Majidi M. (2006) “Impact of Oil on International Economy, International Economics Course, Centre for Science and Innovation Studies.
[13] Mehrara M. and Mohaghegh M. (2011) “Macroeconomic Dynamics in Oil-Exporting Countries: VAR Study”. International Journal of Business and Social Science, 2(21).
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[15] Obinna C. (2014) “Oil Price Fluctuations and the Nigerian Economy”. 05 Nov 2014 OPEC Review 199-217
[16] Ogundipe A.A and Ogundipe O.M. (2013) “Oil Price and Exchange Rate Volatility in Nigeria”. MPRA Working Paper
[17] Olomola and Adejumo (2006) “Oil Price Shock and Macroeconomic Activities in Nigeria”. International Research Journal of Finance and Economics. Issue 3 (2006).
[18] Oyetunji Busayo (2013) “Oil Price and Exchage Rate Volatility in Nigeria”. Pg 5-32
[19] Peter J. B. and Richard A. D. (2002) “Introduction to Time Series and Forecasting.” Springer Journal. 2nd ed. Pg 164 &167
[20] Samuel Imarhiagbe (2014) “Examining the Impact of Crude Oil Price on External Reserves: Evidence from Nigeria”. International Journal of Economics and Finance; Vol. 7, No. 5.
[21] Sims Christopher A. (1986) "Are Forecasting Models Usable for Policy Analysis?" Reserve Bank of Minneapolis Quartely Review, Winter.: 2-16.
[22] Sims, C. (1980) ”Macroeconomics and reality”. Econometrica, Vol. 48, 1–48.
[23] Tatyana Gileva (2010) “Econometrics of Crude Oil Markets”. Pg 3-5
[24] Vee D; Gonpot P and Sookia N. (2011) “Forecasting Volatility of USD/MUR Exchange Rate using GARCH (1,1) model with GED and Student’s-t errors” University Of Mauritius Research Journal – Volume 17– 2011
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Author Information
  • Department of Mathematics, Federal University of Technology, Minna, Nigeria

  • Department of Mathematics, Ahmadu Bello University, Zaria, Nigeria

  • Department of Mathematics, Ahmadu Bello University, Zaria, Nigeria

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    Audu Isah, Husseini Garba Dikko, Ejiemenu Sarah Chinyere. (2015). Modeling the Impact of Crude Oil Price Shocks on Some Macroeconomic Variables in Nigeria Using Garch and VAR Models. American Journal of Theoretical and Applied Statistics, 4(5), 359-367. https://doi.org/10.11648/j.ajtas.20150405.16

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    ACS Style

    Audu Isah; Husseini Garba Dikko; Ejiemenu Sarah Chinyere. Modeling the Impact of Crude Oil Price Shocks on Some Macroeconomic Variables in Nigeria Using Garch and VAR Models. Am. J. Theor. Appl. Stat. 2015, 4(5), 359-367. doi: 10.11648/j.ajtas.20150405.16

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    AMA Style

    Audu Isah, Husseini Garba Dikko, Ejiemenu Sarah Chinyere. Modeling the Impact of Crude Oil Price Shocks on Some Macroeconomic Variables in Nigeria Using Garch and VAR Models. Am J Theor Appl Stat. 2015;4(5):359-367. doi: 10.11648/j.ajtas.20150405.16

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  • @article{10.11648/j.ajtas.20150405.16,
      author = {Audu Isah and Husseini Garba Dikko and Ejiemenu Sarah Chinyere},
      title = {Modeling the Impact of Crude Oil Price Shocks on Some Macroeconomic Variables in Nigeria Using Garch and VAR Models},
      journal = {American Journal of Theoretical and Applied Statistics},
      volume = {4},
      number = {5},
      pages = {359-367},
      doi = {10.11648/j.ajtas.20150405.16},
      url = {https://doi.org/10.11648/j.ajtas.20150405.16},
      eprint = {https://download.sciencepg.com/pdf/10.11648.j.ajtas.20150405.16},
      abstract = {This study investigated the impact of crude oil shocks (COP) on exchange rate (EXCHR), external reserves (EXRS), gross domestic product (GDP), inflation rate (INFL), international trade (INTR) and money supply (MSUP) in Nigeria with a quarterly data from 2000 to 2014 using GARCH and VAR models. From the analysis, all the variables were stationary at first difference with p-value less than 0.05. The presence of heteroscedasticity was found in exchange rate with most of its coefficient models being significant at 5% level and the forecasting model for exchange rate is GARCH (2, 1). Crude oil shocks did not pose significant inflationary threat to the Nigerian economy in the short run; rather, it improves the level of gross domestic product. However, external reserves and international trade were significantly affected due to the recent fall in crude oil export. Oil shocks also positively affected money supply showing that monetary policy response to oil price changes; at the same time, money supply did affect GDP. These show that a diversified economy is really needed},
     year = {2015}
    }
    

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    AU  - Audu Isah
    AU  - Husseini Garba Dikko
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    JF  - American Journal of Theoretical and Applied Statistics
    JO  - American Journal of Theoretical and Applied Statistics
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    PB  - Science Publishing Group
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    UR  - https://doi.org/10.11648/j.ajtas.20150405.16
    AB  - This study investigated the impact of crude oil shocks (COP) on exchange rate (EXCHR), external reserves (EXRS), gross domestic product (GDP), inflation rate (INFL), international trade (INTR) and money supply (MSUP) in Nigeria with a quarterly data from 2000 to 2014 using GARCH and VAR models. From the analysis, all the variables were stationary at first difference with p-value less than 0.05. The presence of heteroscedasticity was found in exchange rate with most of its coefficient models being significant at 5% level and the forecasting model for exchange rate is GARCH (2, 1). Crude oil shocks did not pose significant inflationary threat to the Nigerian economy in the short run; rather, it improves the level of gross domestic product. However, external reserves and international trade were significantly affected due to the recent fall in crude oil export. Oil shocks also positively affected money supply showing that monetary policy response to oil price changes; at the same time, money supply did affect GDP. These show that a diversified economy is really needed
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