Research Article
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Year 2021, Volume: 8 Issue: 2, 237 - 256, 17.05.2021
https://doi.org/10.15637/jlecon.8.2.08

Abstract

References

  • ABDEL-LATIF, H. (2019). FDI response to political shocks: What can the Arab Spring tell us?. Journal of Behavioral and Experimental Finance, 24(1), 100-233.
  • ADENIYI, O.A., OMISAKIN, D., OLUSEGUN, A., YAQUB, J. AND OYINLOLA, A. (2012). Oil price-exchange rate nexus in Nigeria: further evidence from an oil exporting economy. International Journal of Humanities and Social Science (Special Issue), 2(8), 1-14.
  • AFRICAN ECONOMIC OUTLOOK (2019). Nigeria Economic Outlook. Available at https://www.afdb.org/en/countries/west-africa/nigeria/nigeria-economic-outlook.
  • AKRAM, Q.F. (2004). Oil prices and exchange rates: Norwegian evidence. The Econometrics Journal, 7(2), 476-504.
  • ALLEY, I., ASEKOMEH, A., MOBOLAJI, H. AND ADENIRAN, Y.A. (2014). Oil price shocks and Nigerian economic growth. European Scientific Journal, 10(19), 1-17.
  • ASAOLU, T.O. AND ILO, B.M. (2012). The Nigerian stock market and oil price: A cointegration analysis. Kuwait chapter of Arabian journal of business and management review, 33(835),1-10.
  • ATANSAH, P., KHANDAN, M., MOSS, T., MUKHERJEE, A. AND RICHMOND, J. (2017). When Do Subsidy Reforms Stick? Lessons from Iran, Nigeria, and India. Center for Global Development. Retrieved from https://www. cgdev. org/sites/default/files/when-do-subsidy-reformsstick-lessons-iran-nigeria-and-india. pdf.
  • AYADI, O.F. (2005). Oil price fluctuations and the Nigerian economy. OPEC review, 29(3), 199-217.
  • BABATUNDE, M. A. (2015). Oil price shocks and exchange rate in Nigeria. International Journal of Energy Sector Management, 9(1), 2-19.
  • BABATUNDE, M.A. (2015). Oil price shocks and exchange rate in Nigeria. International Journal of Energy Sector Management, 9(1), 2-19.
  • BAL, D. P., & RATH, B. N. (2015). Non-causality between crude oil and exchange rate: a comparative study of China and India. Energy Economics, 51, 149-156.
  • BECKMANN, J. AND CZUDAJ, R. (2013). Oil prices and effective dollar exchange rates. International Review of Economics & Finance, 27, 621-636.
  • BERKELMANS, L. (2005). Credit and monetary policy: An Australian SVAR. Reserve Bank of Australia Discussion Paper 2005-06.
  • BERNHARD, W., & LEBLANG, D. (2002). Democratic processes, political risk, and foreign exchange markets. American Journal of Political Science, 46(2), 316-333.
  • BLOMBERG, S. B., & HESS, G. D. (1997). Politics and exchange rate forecasts. Journal of International Economics, 43(1-2), 189-205.
  • BORYS, M. M., HORVÁTH, R., & FRANTA, M. (2009). The effects of monetary policy in the Czech Republic: An empirical study. Empirica, 36(4), 419-443.
  • BOUOIYOUR, J., SELMI, R., TIWARI, A. K., & SHAHBAZ, M. (2015). The nexus between oil price and Russia’s real exchange rate: better paths via unconditional vs. conditional analysis. Energy Economics, 51, 149-156.
  • BOUZID, A. (2012). The relationship of oil prices and economic growth in Tunisia: A vector error correction model analysis. The Romanian Economic Journal, 43, 3-22.
  • BUETZER, S., HABIB, M.M. AND STRACCA, L., (2012). Global exchange rate configurations: do oil shocks matter? ECB Working Paper No. 1442, 1-35.
  • CHAUDHURI, K. & DANIEL, B. C. (1998). Long-run equilibrium real exchange rates and oil prices. Economic Letters, 58(2), 231-238.
  • CHEN, H., LIU, L., WANG, Y., & ZHU, Y. (2016). Oil price shocks and US dollar exchange rates. Energy, 112(2), 1036-1048.
  • CHEN, S. S., & CHEN, H.C. (2007). Oil prices and real exchange rates. Energy Economics, 29(3), 390-404.
  • CHENG, M.K. (2006). VAR Analysis of Kenya's Monetary Policy Transmission Mechanism: How Does the Central Bank's REPO Rate Affect the Economy? IMF Working Paper No. 6-300, 1-28.
  • DAVOODI, M. H. R., DIXIT, M. S., & PINTER, G. (2013). Monetary transmission mechanism in the East African community: An empirical investigation. IMF Working Paper No. WP13/39 .
  • DE GRAUWE, P. (1996). International money: Postwar-trends and theories. Oxford: Oxford University Press, edition 2, number 9780198775133.
  • HAYS, J. C., FREEMAN, J. R., & NESSETH, H. (2003). Exchange rate volatility and democratization in emerging market countries. International Studies Quarterly, 47(2), 203-228.
  • HUANG, Y., & GUO, F. (2007). The role of oil price shocks on China’s real exchange rate. China Economic Review, 18(4), 403-416.
  • KILISHI, A. A. (2010). Oil price shocks and the Nigeria economy: A variance autoregressive (VAR) model. International Journal of Business and Management, 5(8), 1835-5412.
  • KUTU, A. A., & NGALAWA, H. (2016). Monetary policy shocks and industrial sector performance in South Africa. Journal of Economics and Behavioral Studies, 8(3 (J)), 26-40.
  • LEBLANG, D., & BERNHARD, W. (2006). Parliamentary politics and foreign exchange markets: The world according to GARCH. International Studies Quarterly, 50(1), 69-92.
  • MARSHALL, G., KEITH, J., ROBERT, G.T., (2016). Polity IV project: Political Regime characteristics and transitions, 1800–2009. In: Dataset Users’ Manual. Center for International Development and Conflict Management. University of Maryland.
  • MOHAMMED, D., (2018). Impact of Oil Price Shocks on Exchange Rate in Algeria. International Journal of Finance and Accounting, 7(5), 133-141.
  • MOSHIRI, S. (2015). Asymmetric effects of oil price shocks in oil‐exporting countries: the role of institutions. OPEC Energy Review, 39(2), 222-246.
  • NARAYAN, P. K., NARAYAN, S., & PRASAD, A. (2008). Understanding the oil price-exchange rate nexus for the Fiji Islands. Energy Economics, 30, 2686-2696.
  • NATIONAL BUREAU OF STATISTICS (2019). Q2'19 GDP report: Economic growth slows for the second quarter in a row. Available at https://www.pwc.com/ng/en/assets/pdf/economic-alert-sept-2019.pdf.
  • NGALAWA, H., & VIEGI, N. (2011). Dynamic effects of monetary policy shocks in Malawi. South African Journal of Economics, 79(3), 224-250.
  • OGUNDIPE, O. M., OJEAGA, P., & OGUNDIPE, A. A. (2014). Oil Price and Exchange Rate Volatility in Nigeria. Journal of Economics and Finance (IOSR), 5(4), 01-09.
  • OLAGBAJU, I. O., & AKINBOBOLA, T. O. (2016). A non-linear analysis of the oil price-exchange rate nexus in Nigeria. Journal of Economics and Behavioural Studies, 8(4), 79-91.
  • OLOMOLA, A. P., & ADEJUMO, A. V. (2006). Oil price shocks and macroeconomic activities in Nigeria. International Research Journal of Finance and Economics, 3(1), 28-34.
  • OLUYEMI, O., & ISAAC, E. D. (2017). The effect of exchange rate on imports and exports in Nigeria from January 1996 to June 2015. International Journal of Economics and Business Management, 3(2), 66-77.
  • OYEYEMI, A. M. (2013). The growth implications of oil price shock in Nigeria. Journal of Emerging Trends in Economics and Management Sciences, 4(3), 343-349.
  • REBOREDO, J. C. (2012). Modelling oil price and exchange rate co-movements. Journal of Policy Model, 34, 419-440.
  • REBOREDO, J. C., & RIVERA- CASTRO, M. A. (2013). A wavelet decomposition approach to crude oil price and exchange rate dependence. Economic Model, 32, 42-57.
  • REBOREDO, J. C., RIVERA- CASTRO, M. A., ZEBENDE, G. F. (2014). Oil and US exchange rate dependence: A detrended cross-correlation approach. Energy Economics, 42, 132-139.
  • SARI, R., HAMMOUDEH, S., SOYTOS, U. (2010). Dynamics of oil price, precious metal prices and exchange rate. Energy Economics, 32(2), 351-362.
  • SHAZLY, M. R. (1989). The oil price effect on the dollar/pound rate of exchange. International Economic Journal, 3(1), 73-83.
  • THE GUARDIAN (2017). I will resign if Nigeria still imports petrol in 2019, says Kachikwu. https://guardian.ng/news/i-will-resign-if-nigeria-still-imports-petrol-in-2019-says-kachikwu/.
  • TWENEBOAH, G., & ADAM, A. M. (2008). Implications of oil price shocks for monetary policy in Ghana: A vector error correction model. Available at SSRN: 1312366.
  • UDDIN, G. S., TIWARI, A. K., AROURI, M., TEULON, F. (2013). On the relationships between oil price and exchange rates: a wavelet analysis. Economic Model, 35, 502-507.
  • URAMA, N. E., & ILOH, E. C. (2018). The Political Economy of Exchange Rate Policy and Capital Control in Nigeria. AfriHeritage Policy Working Paper 2018/001, 1-16.
  • VAN AARLE, B., GARRETSEN, H., & GOBBIN, N. (2003). Monetary and fiscal policy transmission in the Euro-area: evidence from a structural VAR analysis. Journal of Economics and Business, 55(5), 609-638.
  • WANG, Y., WU, C., & YANG, L. (2013). Oil price shocks and stock market activities: Evidence from oil-importing and oil-exporting countries. Journal of Comparative Economics, 40, 1220-1239.
  • ZHANG, Y. J., FAN, Y., TSAI, H. T., & WEI, Y. M. (2008). Spillover effect of US dollar exchange rate on oil prices. Journal of Policy Model, 30, 973-991.

EXCHANGE RATE RESPONSE TO OIL PRICE AND POLITICAL SHOCKS: WHAT CAN NIGERIA DO?

Year 2021, Volume: 8 Issue: 2, 237 - 256, 17.05.2021
https://doi.org/10.15637/jlecon.8.2.08

Abstract

This study determines how political institution (factor) and oil prices play a significant role in exchange rate instabilities in Nigeria between 1980:Q1 and 2019:Q4. Employing a VECM model with time series and structural analysis, the study decomposes the oil prices into positive and negative shocks. The findings show a symmetric impact from positive and negative oil shocks while political/institutional factor, on the contrary, indicates an asymmetric impact on exchange rates. The study, therefore, recommends that strong political institution that promotes good governance, accountability and transparency should be put in place. This will untimely reduce the cost of importation that prevents the country from reaping the benefits of positive oil price shocks. While this study employs one of the unique approaches to the study of exchange rates worldwide, it also provides insights to how institutional/political factor contribute to exchange rate instability in Nigeria.

References

  • ABDEL-LATIF, H. (2019). FDI response to political shocks: What can the Arab Spring tell us?. Journal of Behavioral and Experimental Finance, 24(1), 100-233.
  • ADENIYI, O.A., OMISAKIN, D., OLUSEGUN, A., YAQUB, J. AND OYINLOLA, A. (2012). Oil price-exchange rate nexus in Nigeria: further evidence from an oil exporting economy. International Journal of Humanities and Social Science (Special Issue), 2(8), 1-14.
  • AFRICAN ECONOMIC OUTLOOK (2019). Nigeria Economic Outlook. Available at https://www.afdb.org/en/countries/west-africa/nigeria/nigeria-economic-outlook.
  • AKRAM, Q.F. (2004). Oil prices and exchange rates: Norwegian evidence. The Econometrics Journal, 7(2), 476-504.
  • ALLEY, I., ASEKOMEH, A., MOBOLAJI, H. AND ADENIRAN, Y.A. (2014). Oil price shocks and Nigerian economic growth. European Scientific Journal, 10(19), 1-17.
  • ASAOLU, T.O. AND ILO, B.M. (2012). The Nigerian stock market and oil price: A cointegration analysis. Kuwait chapter of Arabian journal of business and management review, 33(835),1-10.
  • ATANSAH, P., KHANDAN, M., MOSS, T., MUKHERJEE, A. AND RICHMOND, J. (2017). When Do Subsidy Reforms Stick? Lessons from Iran, Nigeria, and India. Center for Global Development. Retrieved from https://www. cgdev. org/sites/default/files/when-do-subsidy-reformsstick-lessons-iran-nigeria-and-india. pdf.
  • AYADI, O.F. (2005). Oil price fluctuations and the Nigerian economy. OPEC review, 29(3), 199-217.
  • BABATUNDE, M. A. (2015). Oil price shocks and exchange rate in Nigeria. International Journal of Energy Sector Management, 9(1), 2-19.
  • BABATUNDE, M.A. (2015). Oil price shocks and exchange rate in Nigeria. International Journal of Energy Sector Management, 9(1), 2-19.
  • BAL, D. P., & RATH, B. N. (2015). Non-causality between crude oil and exchange rate: a comparative study of China and India. Energy Economics, 51, 149-156.
  • BECKMANN, J. AND CZUDAJ, R. (2013). Oil prices and effective dollar exchange rates. International Review of Economics & Finance, 27, 621-636.
  • BERKELMANS, L. (2005). Credit and monetary policy: An Australian SVAR. Reserve Bank of Australia Discussion Paper 2005-06.
  • BERNHARD, W., & LEBLANG, D. (2002). Democratic processes, political risk, and foreign exchange markets. American Journal of Political Science, 46(2), 316-333.
  • BLOMBERG, S. B., & HESS, G. D. (1997). Politics and exchange rate forecasts. Journal of International Economics, 43(1-2), 189-205.
  • BORYS, M. M., HORVÁTH, R., & FRANTA, M. (2009). The effects of monetary policy in the Czech Republic: An empirical study. Empirica, 36(4), 419-443.
  • BOUOIYOUR, J., SELMI, R., TIWARI, A. K., & SHAHBAZ, M. (2015). The nexus between oil price and Russia’s real exchange rate: better paths via unconditional vs. conditional analysis. Energy Economics, 51, 149-156.
  • BOUZID, A. (2012). The relationship of oil prices and economic growth in Tunisia: A vector error correction model analysis. The Romanian Economic Journal, 43, 3-22.
  • BUETZER, S., HABIB, M.M. AND STRACCA, L., (2012). Global exchange rate configurations: do oil shocks matter? ECB Working Paper No. 1442, 1-35.
  • CHAUDHURI, K. & DANIEL, B. C. (1998). Long-run equilibrium real exchange rates and oil prices. Economic Letters, 58(2), 231-238.
  • CHEN, H., LIU, L., WANG, Y., & ZHU, Y. (2016). Oil price shocks and US dollar exchange rates. Energy, 112(2), 1036-1048.
  • CHEN, S. S., & CHEN, H.C. (2007). Oil prices and real exchange rates. Energy Economics, 29(3), 390-404.
  • CHENG, M.K. (2006). VAR Analysis of Kenya's Monetary Policy Transmission Mechanism: How Does the Central Bank's REPO Rate Affect the Economy? IMF Working Paper No. 6-300, 1-28.
  • DAVOODI, M. H. R., DIXIT, M. S., & PINTER, G. (2013). Monetary transmission mechanism in the East African community: An empirical investigation. IMF Working Paper No. WP13/39 .
  • DE GRAUWE, P. (1996). International money: Postwar-trends and theories. Oxford: Oxford University Press, edition 2, number 9780198775133.
  • HAYS, J. C., FREEMAN, J. R., & NESSETH, H. (2003). Exchange rate volatility and democratization in emerging market countries. International Studies Quarterly, 47(2), 203-228.
  • HUANG, Y., & GUO, F. (2007). The role of oil price shocks on China’s real exchange rate. China Economic Review, 18(4), 403-416.
  • KILISHI, A. A. (2010). Oil price shocks and the Nigeria economy: A variance autoregressive (VAR) model. International Journal of Business and Management, 5(8), 1835-5412.
  • KUTU, A. A., & NGALAWA, H. (2016). Monetary policy shocks and industrial sector performance in South Africa. Journal of Economics and Behavioral Studies, 8(3 (J)), 26-40.
  • LEBLANG, D., & BERNHARD, W. (2006). Parliamentary politics and foreign exchange markets: The world according to GARCH. International Studies Quarterly, 50(1), 69-92.
  • MARSHALL, G., KEITH, J., ROBERT, G.T., (2016). Polity IV project: Political Regime characteristics and transitions, 1800–2009. In: Dataset Users’ Manual. Center for International Development and Conflict Management. University of Maryland.
  • MOHAMMED, D., (2018). Impact of Oil Price Shocks on Exchange Rate in Algeria. International Journal of Finance and Accounting, 7(5), 133-141.
  • MOSHIRI, S. (2015). Asymmetric effects of oil price shocks in oil‐exporting countries: the role of institutions. OPEC Energy Review, 39(2), 222-246.
  • NARAYAN, P. K., NARAYAN, S., & PRASAD, A. (2008). Understanding the oil price-exchange rate nexus for the Fiji Islands. Energy Economics, 30, 2686-2696.
  • NATIONAL BUREAU OF STATISTICS (2019). Q2'19 GDP report: Economic growth slows for the second quarter in a row. Available at https://www.pwc.com/ng/en/assets/pdf/economic-alert-sept-2019.pdf.
  • NGALAWA, H., & VIEGI, N. (2011). Dynamic effects of monetary policy shocks in Malawi. South African Journal of Economics, 79(3), 224-250.
  • OGUNDIPE, O. M., OJEAGA, P., & OGUNDIPE, A. A. (2014). Oil Price and Exchange Rate Volatility in Nigeria. Journal of Economics and Finance (IOSR), 5(4), 01-09.
  • OLAGBAJU, I. O., & AKINBOBOLA, T. O. (2016). A non-linear analysis of the oil price-exchange rate nexus in Nigeria. Journal of Economics and Behavioural Studies, 8(4), 79-91.
  • OLOMOLA, A. P., & ADEJUMO, A. V. (2006). Oil price shocks and macroeconomic activities in Nigeria. International Research Journal of Finance and Economics, 3(1), 28-34.
  • OLUYEMI, O., & ISAAC, E. D. (2017). The effect of exchange rate on imports and exports in Nigeria from January 1996 to June 2015. International Journal of Economics and Business Management, 3(2), 66-77.
  • OYEYEMI, A. M. (2013). The growth implications of oil price shock in Nigeria. Journal of Emerging Trends in Economics and Management Sciences, 4(3), 343-349.
  • REBOREDO, J. C. (2012). Modelling oil price and exchange rate co-movements. Journal of Policy Model, 34, 419-440.
  • REBOREDO, J. C., & RIVERA- CASTRO, M. A. (2013). A wavelet decomposition approach to crude oil price and exchange rate dependence. Economic Model, 32, 42-57.
  • REBOREDO, J. C., RIVERA- CASTRO, M. A., ZEBENDE, G. F. (2014). Oil and US exchange rate dependence: A detrended cross-correlation approach. Energy Economics, 42, 132-139.
  • SARI, R., HAMMOUDEH, S., SOYTOS, U. (2010). Dynamics of oil price, precious metal prices and exchange rate. Energy Economics, 32(2), 351-362.
  • SHAZLY, M. R. (1989). The oil price effect on the dollar/pound rate of exchange. International Economic Journal, 3(1), 73-83.
  • THE GUARDIAN (2017). I will resign if Nigeria still imports petrol in 2019, says Kachikwu. https://guardian.ng/news/i-will-resign-if-nigeria-still-imports-petrol-in-2019-says-kachikwu/.
  • TWENEBOAH, G., & ADAM, A. M. (2008). Implications of oil price shocks for monetary policy in Ghana: A vector error correction model. Available at SSRN: 1312366.
  • UDDIN, G. S., TIWARI, A. K., AROURI, M., TEULON, F. (2013). On the relationships between oil price and exchange rates: a wavelet analysis. Economic Model, 35, 502-507.
  • URAMA, N. E., & ILOH, E. C. (2018). The Political Economy of Exchange Rate Policy and Capital Control in Nigeria. AfriHeritage Policy Working Paper 2018/001, 1-16.
  • VAN AARLE, B., GARRETSEN, H., & GOBBIN, N. (2003). Monetary and fiscal policy transmission in the Euro-area: evidence from a structural VAR analysis. Journal of Economics and Business, 55(5), 609-638.
  • WANG, Y., WU, C., & YANG, L. (2013). Oil price shocks and stock market activities: Evidence from oil-importing and oil-exporting countries. Journal of Comparative Economics, 40, 1220-1239.
  • ZHANG, Y. J., FAN, Y., TSAI, H. T., & WEI, Y. M. (2008). Spillover effect of US dollar exchange rate on oil prices. Journal of Policy Model, 30, 973-991.
There are 53 citations in total.

Details

Primary Language English
Subjects Business Administration
Journal Section Articles
Authors

Augustine Adebayo Kutu This is me 0000-0002-6642-1487

David Alaba Alorı This is me 0000-0002-7792-8515

Harold Ngalawa This is me 0000-0002-7040-5594

Publication Date May 17, 2021
Published in Issue Year 2021 Volume: 8 Issue: 2

Cite

APA Kutu, A. A., Alorı, D. A., & Ngalawa, H. (2021). EXCHANGE RATE RESPONSE TO OIL PRICE AND POLITICAL SHOCKS: WHAT CAN NIGERIA DO?. Journal of Life Economics, 8(2), 237-256. https://doi.org/10.15637/jlecon.8.2.08