Oil Price and Exchange Rate Volatility in Nigeria

Oyetunji, Busayo (2013) Oil Price and Exchange Rate Volatility in Nigeria. Other thesis, Covenant University.

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Abstract

The study examined the effects of oil price, external reserves and interest rate on exchange rate volatility in Nigeria using yearly data from the year 1970 to 2011. The theoretical framework of this study is based on Generalized Autoregressive Conditional Heteroskedasity modeled by Tim Bolerslev (1986) and Exponential General Autoregressive Conditional heteroskedastic modeled by Daniel Nelson (1991). The models are used to estimate the relationship between oil price changes and exchange rate. Relevant descriptive and econometric analyses were employed. The econometric tests used include the unit root tests, Johansen co-integration technique and the Vector Error Correction Model (VECM) when the unit root tests were carried out; all the variables were stationary at first difference. The long run relationship among the variables was determined using the Johansen Co-integration technique while the vector correction mechanism was used to examine the speed of adjustment of the variables from the short run dynamics to the long run. It was observed that a proportionate change in oil price leads to a more than proportionate change in exchange rate volatility in Nigeria by 2.8%. I therefore recommend that the Nigeria government should diversify from the Oil sector to other sectors of the economy so that Crude oil will no longer be the mainstay of the economy and frequent changes in crude oil price will not influence exchange rate volatility significantly in Nigeria.

Item Type:	Thesis (Other)
Subjects:	H Social Sciences > HB Economic Theory H Social Sciences > HG Finance
Divisions:	UNSPECIFIED
Depositing User:	Oluwadara Olorunsemilogo
Date Deposited:	05 Dec 2013 09:53
Last Modified:	05 Dec 2013 09:53
URI:	http://eprints.covenantuniversity.edu.ng/id/eprint/1927

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