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Oil Price Shocks and the Macroeconomy of Nigeria: A Non-linear Approach

Shehu Aliyu

MPRA Paper from University Library of Munich, Germany

Abstract: Nowadays, the impact of oil price shocks is pervasive as it virtually affects all facets of human endeavor. As such, it is pertinent that we should know the relationship between oil price shocks and the macroeconomy. Therefore, this paper assesses empirically, the effects of oil price shocks on the real macroeconomic activity in Nigeria. Granger causality tests and multivariate VAR analysis were carried out using both linear and non-linear specifications. Inter alia, the latter category includes two approaches employed in the literature, namely, the asymmetric and net specifications oil price specifications. The paper finds evidence of both linear and non-linear impact of oil price shocks on real GDP. In particular, asymmetric oil price increases in the non-linear models are found to have positive impact on real GDP growth of a larger magnitude than asymmetric oil price decreases adversely affects real GDP. The non-linear estimation records significant improvement over the linear estimation and the one reported earlier by Aliyu (2009). Further, utilizing the Wald and the Granger multivariate and bivariate causality tests, results from the latter indicate that linear price change and all the other oil price transformations are significant for the system as a whole. The Wald test indicates that our oil price coefficients in linear and asymmetric specifications are statistically significant.

Keywords: Oil Shocks; Macroeconomy; Granger Causality; Asymmetry; Vector Autoregressive (search for similar items in EconPapers)
JEL-codes: E37 Q43 Q47 (search for similar items in EconPapers)
Date: 2009-11-09, Revised 2009-11-16
New Economics Papers: this item is included in nep-afr, nep-ene and nep-mac
References: View references in EconPapers View complete reference list from CitEc
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