This paper pioneers research on the relationship between oil price shocks and current account dynamics in Nigeria, a country that doubles as an oil exporter and importer. Structural vector autoregression is applied to quarterly data from 1970Q1 to 2008Q4 to identify oil price shocks and to evaluate its net effect on Nigeria's current account balances. After introducing three control variables (output gap, real exchange rate misalignment and the lagged values of current account ratio), we impose six structural restrictions on the model to help track and identify the structural shocks of oil prices on current account balances. Overall, we find that oil price shocks have a significant short‐run effect on current account balances for Nigeria. Specifically, the impulse response of the current account ratio to oil price shocks increases speedily in the first six quarters, and then, it declines afterwards until the 30th quarter. The variance decomposition analysis shows that approximately 15.77 per cent of the variations in current account dynamics are caused by oil price shocks. The insight we draw from this finding is that there is no one‐for‐one relation between oil price shocks and current account dynamics. Exchange rate misalignment provides the offsetting effect as revealed from our results. The implication for policy is that reserve‐augmenting strategies, lax monetary policy and intensified international financial integration would need to be enhanced and sustained by policy‐makers to reinforce the positive effects of oil price shocks on the Nigerian economy.

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Given its economic structure, high-energy intensity and its simultaneity as an oil-importing and -exporting economy, Nigeria stands out as a special case to study the oil price-macroeconomy relation. By using a structural vector autoregressive model with 10 theoretically derived structural factorizations, this paper studies the linear and asymmetric impacts of oil price shocks on the Nigerian economy, focusing on the supply side effects, wealth transfer effects, inflation effects and real balance effects of oil price shocks between the period 1970Q1 and 2008Q4. Overall, the results show that oil price shocks have asymmetric impacts in one direction (positive) on the Nigerian economy and are not a major determinant of macroeconomic activity in Nigeria. Using Granger causality analysis, the paper also investigates the short-run impacts of oil price shocks on the Nigerian economy. The results showed that depending on the measurement of oil price shock used, it only Granger-caused output and inflation in the short run. This revealed that though Nigeria is a major exporter of crude oil, domestic macroeconomic trends do not significantly influence the dynamics of global oil markets, i.e. oil prices are strictly exogenous to the Nigerian economy. These insights have inspired us to recommend that the common practise of national development planning, premised on forecasts of anticipated oil prices should be de-emphasized in Nigeria. 413Linear and asymmetric impacts of oil price shocks in an oil-importing and -exporting economy 415 OPEC Energy Review December 2012 The role of asymmetry in macroeconomic responses to OPSsSymmetry in the responses of OPSs implies, e.g. that the response of real output to a negative OPS will be the exact mirror image of the response to a positive OPS of the Linear and asymmetric impacts of oil price shocks in an oil-importing and -exporting economy 417 OPEC Energy Review December 2012 Linear and asymmetric impacts of oil price shocks in an oil-importing and -exporting economy 425 OPEC Energy Review December 2012 Linear and asymmetric impacts of oil price shocks in an oil-importing and -exporting economy 433 OPEC Energy Review December 2012 Linear and asymmetric impacts of oil price shocks in an oil-importing and -exporting economy 439 OPEC Energy Review December 2012