Modeling Oil Price Shocks on Macroeconomic Performance in Nigeria
Abstract
The study examines the relationship between economic performance and oil price volatility in Nigeria, with a particular emphasis on fiscal imbalance, corruption, exchange rate, and real GDP. It utilizes the Autoregressive Distributed Lag (ARDL) model with structural breaks, Augmented Dickey fuller test and Philips (ADF) and Philips Perron (PP) were employed to test the stationarity properties of the variables. For structural break, the Perron and Vogelsang unit root test is employed. After ascertaining the stationarity properties using Gregory-Hansen test, the study determines that there is a co-movement between oil price volatility and macroeconomic performance, while the results of the short-run test indicate moderate adjustment back to the equilibrium. The results suggest that oil price changes, fiscal imbalance, corruption, and exchange rate significantly influence real GDP, while the outcomes of Granger causality test based on the Toda-Yamamoto framework show a unidirectional causality from exchange rate and corruption to economic performance. Similarly, the results of diagnostic and stability tests confirm the robustness and proper specification of the model. The study concludes that macroeconomic performance in Nigeria is highly sensitive to oil price fluctuations and institutional dynamics. Policy implications highlight the need for effective fiscal management, as well as diversification strategies to mitigate external shocks and promote sustainable economic growth.
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References
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