Oil price shocks and exchange rate in Nigeria

Abstract

Purpose

This study aims to examine the relationship between the oil price and the exchange rate for Nigeria between January 1997 and December 2012. Previous empirical studies revealed an ambiguous relationship between crude oil prices and exchange rates, a reason for exploring the differential effects of positive and negative oil price shocks on the exchange rate.

Design/methodology/approach

Time series and structural analysis were used.

Findings

The findings indicate different responses for the exchange rate with respect to positive and negative oil price shocks. Positive oil price shocks were found to depreciate the exchange rate, whereas negative oil price shocks appreciate the exchange rate. In addition, the asymmetric effects of positive and negative oil price shocks on the real exchange rate were not supported by the statistical evidences. The empirical results were robust to different specifications.

Originality/value

To the best of the authors’ knowledge, this is the first paper to assess the differential impact of positive and negative oil price shocks and the role of oil prices in predicting the exchange rate over long horizons in Nigeria.

Citation

Babatunde, M.A. (2015), "Oil price shocks and exchange rate in Nigeria", International Journal of Energy Sector Management, Vol. 9 No. 1, pp. 2-19. https://doi.org/10.1108/IJESM-12-2013-0001