Oil Price and Exchange Rate Volatilities: Its Implications on the Cost of Living in OPEC Member Country - Nigeria

Sylvester Udabah and Chimaobi Okolo

MPRA Paper from University Library of Munich, Germany

Abstract: As the large exporter of crude oil, Nigeria heavily depends on oil earnings to fund economic activities. The country also rely heavily on imports of consumables, both oil and non oil consumables. Nigerias vulnerability to crude oil price shock at the international oil market exposes the nation to certain negative shocks. The study investigated the dynamics of crude oil price and exchange rate volatilities and its implication on the cost of living in Nigeria. Structural Generalized Autoregressive Conditional Heteroscedasticity (S-GARCH) was employed to measure the influence of crude oil price volatility on the exchange rate fluctuation as well as their influence on the consumer price index. Oil price and exchange rate volatilities did not significantly pass-through to the consumer price index in Nigeria. However, information on previous volatilities proved a significant determinant of current volatilities. The media should be significantly utilized as a strategic tool to better predict and manage oil price and exchange rate volatilities in Nigeria. Government should further reconsider allowing the importation of certain consumable goods which are also produced in Nigeria, while boosting domestic production and export.

Keywords: cost of living; exchange rate; oil price; pass-through; volatilities. (search for similar items in EconPapers)
JEL-codes: E31 F13 F31 F41 (search for similar items in EconPapers)
Date: 2018
New Economics Papers: this item is included in nep-ene, nep-int and nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:86509

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