The effect of crude oil price change and volatility on Nigerian economy

This study analyses the effects of changes in the international oil price and price volatility on the macro-economy of an African oil exporter, Nigeria. Applying the five-variable Structural Vector Auto Regression (SVAR) model to monthly data series from January 1970 to May 2011, impulse response functions are calculated to see the influences among the crude oil price, Nigeria’s exchange rate, money supply (M2), domestic price levels (CPI) and the policy interest rate (Discount Rate). The estimation results suggest that Nigeria’s exchange rate is affected not only by the changes in the international oil price but also by its price volatility. M2 increases as a response to an oil price increase, which suggests that as the international oil price rises there is a huge increase in the money supply into the domestic market from the national oil company and international oil companies, which are the largest suppliers of dollars next to the monetary authority itself