Modeling Nigeria Crude Oil Production and Price Volatility Using Multivariate Generalized Autoregressive Conditional Heteroscedasticity Models

Abstract

Modelling of Nigeria's Crude Oil Production and Price Volatilities was the major focus of this paper. The paper investigated the stationarity of the multivariate time series positive definiteness property, and the results revealed the stationarity of the multivariate time series. Special classes of MARCH and MGARCH models were fitted to the crude oil price and production volatilities, and MARCH [p (3,1)] outperformed other models with the aid of model selection criteria. The research has established interaction and interdependence between the two macroeconomic variables and has also revealed bilateral causality between crude oil production and price. This further substantiates the fact that every regime of oil price shock is tantamount to high variability in production, which, in effect, causes a setback in the economic development of the affected country. Hence, this paper proposes proactive measures that can always guarantee stability in crude oil production whenever the country experiences instability in the oil price in the international market.