Asymetric Pass-through Effects of Oil Price Shocks and Exchange Rates on Inflation in Nigeria: Evidence from a Nonlinear ARDL Model

Sa’ad, Suleiman; Usman, Ali Baba; Omaye, Solomon Ochada; Yau, Hamisu

doi:10.19044/esipreprint.1.2023.p350

Cited by 5 publications

(2 citation statements)

References 7 publications

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“…More so, the examination of the exchange rate dynamics reveals the complex relationship between oil price shocks and foreign exchange markets. The variance decomposition analysis illustrates that EXR is significantly influenced by its own past values, oil price and Real Gross Domestic Product as also supported by Nasir, et al, (2023). The result reveals that an increase in crude oil price leads to stranger local currency through heightened foreign exchange earnings.…”

Section: Discussion Of Findingsmentioning

confidence: 76%

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2024

IJDEE

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Balance of Payments (BOP). Utilising a Vector Autoregressive (VAR) model, the study reveals a positive impact of oil price shocks on RGDP, indication economic expansion during global crude oil price and contraction during decline, such as observed in the 2015 recession. Variance decomposition analysis demonstrate the variability contributions of oil price, exchange rate, and BOP to RGDP, emphasizing the significant role of the oil sector in Nigeria's economic dynamics Additionally, Granger Causality/Block Exogeneity Tests reveals the directional causality between oil price and the key variables, emphasizing their substantial role in shaping economic and trade dynamics. accelerated economic diversification, investment in other sectors beyond oil, fostering export-led growth, building foreign exchange reserves to reduce the economic vulnerability to fluctuation in global oil prices.

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Section: Discussion Of Findingsmentioning

confidence: 76%

Untitled

2024

IJDEE

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“…Sa'ad et al. (2023) employed both linear and non‐linear ARDL models to evaluate the asymmetric pass‐through of oil price shocks and exchange rate changes on inflation rates in Nigeria. Their research revealed that positive changes in oil prices had a more substantial impact on inflation compared to negative changes in oil prices.…”

Section: Literature Reviewmentioning

confidence: 99%

Oil price shocks pass‐through to domestic prices in Nigeria

Orekoya,

Adeniyi,

Tijani

2024

OPEC Energy Review

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The study investigated the potential non‐linear impacts of fluctuations in oil prices on domestic prices in Nigeria. Utilising the non‐linear autoregressive distributed lag (NARDL) model, the study revealed the presence of asymmetry in the behaviour of domestic prices. Both forms of oil price shocks were observed to have a negative influence on domestic prices in the short term, with only positive oil price shocks demonstrating statistical significance. However, in the long run, a distinct pattern emerged where a decrease in oil prices significantly affected domestic prices. Additionally, analysis of VAR impulse response showed a consistently negative reaction of domestic prices to oil price shocks, falling below the steady‐state equilibrium. The study concluded that changes in oil prices, in conjunction with other macroeconomic variables, affected the prices of domestic goods in Nigeria, whether in the short or long term. This underscored the complexity of Nigeria's economic landscape. Consequently, it is advisable to prudently invest excess revenue generated from rising oil prices to mitigate the adverse impacts of negative oil shocks on the economy.

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Asymmetric Exchange Rate Pass-Through and Inflation Rate in Nigeria

Ikue,

Benjamin,

Onodjaefe

et al. 2024

IJRBS

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This paper investigates the asymmetric exchange rate pass-through (ERPT) to inflation in Nigeria. The study employed Autoregressive Distributed Lag (ARDL) and Nonlinear ARDL (NARDL) models from 2010Q1 to 2024Q2. The analysis incorporates key policy changes, such as the 2023 exchange rate unification, and explores both the short- and long-run impacts of exchange rate fluctuations on food and headline inflation. In particular, the study highlights the response and pass-through periods of exchange rate shocks, with depreciation demonstrating a stronger and more immediate effect on inflation than on appreciation. Results reveal that exchange rate depreciation exerts significant cost-push pressures, with a pass-through effect observed within 3 to 4 quarters, while the effect of appreciation is weaker and more prolonged. This asymmetry is especially pronounced for food inflation, where the dependency on imported goods accelerates the transmission of exchange rate shocks to consumer prices. The study also finds that cumulative depreciation has a much more pronounced effect on inflation. At the same time, appreciation offers minimal relief, reflecting Nigeria’s vulnerability to exchange rate volatility due to its reliance on imports. The findings show the importance of managing exchange rate fluctuations to control inflation, particularly given the asymmetry in how depreciation and appreciation affect prices. By providing a comprehensive analysis of both long- and short-run dynamics, this study contributes to the understanding of ERPT in Nigeria, offering insights for policymakers to implement targeted interventions to mitigate inflationary pressures in the context of exchange rate instability.

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Asymetric Pass-through Effects of Oil Price Shocks and Exchange Rates on Inflation in Nigeria: Evidence from a Nonlinear ARDL Model

Cited by 5 publications

References 7 publications

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Oil price shocks pass‐through to domestic prices in Nigeria

Asymmetric Exchange Rate Pass-Through and Inflation Rate in Nigeria

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