Asymmetric effects of oil price changes on the Nigerian exchange rate

Abstract

Purpose The purpose of this paper is to examine the effect of crude oil prices on the Nigerian exchange rate with emphasis on discriminating between the effects of positive and negative changes in oil price on exchange rate. Design/methodology/approach The authors used monthly time series data from 1996:1 to 2019:6 and adopted two oil price measures, namely, Brent crude and West Texas Intermediary prices. For analysis, the authors used stepwise least squares to estimate a non-linear ARDL (NARDL) model and Wald tests to determine cointegration and the presence of asymmetric effects. Findings The findings showed that positive and negative Brent crude price changes significantly affect exchange rates differently in nominal terms, both in the long-run and short-run. However, the differences were purely in terms of effect size because the exchange rate decreased for both negative and positive oil price changes. Originality/value Whilst empirical research on asymmetries in the effect of oil price on exchange rate abounds, little evidence exists in Nigeria’s case. Although some studies previously tested for asymmetric oil price effects on the Nigerian currency, the approach used did not estimate long and short-run effects or test of long-run and short-run asymmetries. This paper fills this methodological gap using monthly using the NARDL approach. The NARDL approach provided the advantage of estimating effects for the long-run and short-run and testing for asymmetries in both time spans.

Dynamic linkages among international crude oil, exchange rate and Norwegian stock market: evidence from ARDL bound testing approach

“…Empirical research conducted to uncover the role of oil price as a determining factor of real exchange rate has generated ambiguous results. Although strong association between these variables is detected for certain oil-exporting countries (Onodje et al , 2021), but for others, this relationship was found to be weak and even negative. Canadian dollar, currency of a net oil-exporting country is observed to carry a positive impact of rising trend in oil price.…”

Modelling oil price shocks and exchange rate behaviour in Nigeria – A regime‐switching approach

“…A few other studies have modified this restrictive assumption to include asymmetry. For example, the studies conducted by Nouira et al (2018); Sanusi (2020); Olayeni et al (2020); Onodje et al (2020); Abubakirova et al (2021); Agbo (2021); Fasanya et al (2021); Baek (2021); and Ajala et al (2021) are those that focused on net oil‐exporting economies and found asymmetric relationships between the nexus. As a corollary, the studies on oil‐importing economies that found asymmetric relationships include Churchill et al, 2019; Kumar, 2019; Khraief et al, 2020; Bangura et al, 2021.…”

Oil prices, news-based uncertainty measures and exchange rate returns in BRICS countries

“…Following this theoretical backdrop, recent studies have examined the predictive influence of oil price on the exchange rate via a different approach (Tiwari et al , 2013; Basher et al , 2015; Jammazi et al , 2015; Baghestani et al , 2019; Huang et al , 2020; Satish, 2019; Huiming and Xiuyun, 2019; Balcilar and Usman, 2021; Devpura, 2021; Balcilar et al , 2021; Salisu et al , 2020; Chekouri et al , 2021; Onodje et al , 2022). In BRICS countries, Baghestani et al’s (2019) directional forecasting approach shows oil price predictive power on the BRICS’ exchange rate for the period 2008–2017, while Salisu et al ’s (2020) symmetric and asymmetric predictive model shows that oil price is a good predictor of the exchange rate.…”