Exchange Rate Response to Oil Price and Political Shocks: What Can Nigeria Do?

Abstract

This study determines how political institution (factor) and oil prices play a significant role in exchange rate instabilities in Nigeria between and . 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.

Pengaruh Faktor Ekonomi Makro, Kestabilan Politik dan Harga Minyak Dunia pada Nilai Tukar Rupiah terhadap Dolar Amerika Serikat

“…Model penelitian pada Gambar 2 merupakan gabungan model penelitian Khan et al (2019) dan Kutu et al (2021). Variabel independen faktor ekonomi makro, seperti inflasi, suku bunga, PDB, dan keterbukaan perdagangan berasal dari penelitian Khan et al (2019)…”

“…Hal itu mengindikasikan bahwa kestabilan politik mempunyai pengaruh signifikan negatif pada nilai tukar. Hal ini sesuai dengan hasil penelitian Akter (2021), Kutu et al (2021), dan Bush (2019). Negara yang mempunyai kestabilan politik yang baik mengindikasikan bahwa negara tersebut mempunyai pemerintahan yang efektif, kualitas layanan sipil, dan layanan publik yang baik, serta mempunyai kualitas baik dari segi kebijakan publik dan pelaksanaannya.…”

“…, sedangkan variabel independent, seperti harga minyak dunia dan kestabilan berasal dari penelitianKutu et al (2021). Selanjutnya, kedua model tersebut digabungkan seperti terlihat pada Gambar 2 dengan variabel dependen yang sama, yaitu nilai tukar.…”

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

“…A few other studies found evidence that the fluctuations in the global price of oil lead to exchange rate appreciations in some economies without recourse to their trade profiling. These studies include those that are targeted at net exporting countries (such as Delgado et al, 2018; Ologbenla, 2020; Kutu et al, 2021; Mukhtarov et al, 2021; Singal et al, 2019; Suliman & Abid, 2020; among others) and net importing countries (such as Ahmad et al, 2020; Hung, 2019; Liu et al, 2020; and others). Those that combined both classifications include He and Hamori (2019); Tiwari et al (2019); Jiang et al (2020); Chkir et al (2020); Nandelenga and Simpasa (2020); Yildirim and Arifli (2020); Villareal‐Samaniego (2021); Aimer and Lusta (2021); and others.…”

Effects of Oil Price Volatility on Foreign Exchange of Major Oil Producing Countries in Africa

“…In Sierra Leone, Bangura, Boima, Pessima and kargbo (2021) focused on the relationship between modeling returns and volatility transmission from crude oil prices to Leone-US Dollar exchange Sierra Leone. Kutu, Alori and Ngalawa (2021) assessed the Exchange rate response to oil price and political shocks in Nigeria. In Russia, Li (2020) investigated the influence of international crude oil price fluctuation on Russian exchange rate.…”