OIL PRICE AND MACROECONOMIC VARIABLES IN AN OIL-DEPENDENT NIGERIA

Abstract: This study reflects an attempt to examine the relationship among oil price and three key macroeconomic variables in Nigeria over the period running from 1960 to 2018 on annualized frequency, with GDP at the centre of focus from a short-run perspective. The Keynesian aggregate demand identity equation provides the theoretical basis for generating the model utilized in the study. Adopting the technique of Vector Autoregression (VAR), this study finds that oil price is an important variable that is shaping the economy of Nigeria and that the impact of oil price on economic growth in Nigeria is rather spontaneous and immediate within the short-term. Expectedly, findings from the study suggest that the value of Naira has the tendency to appreciate when the oil price increases as more demand for the Nigeria’s crude oil means higher oil price and consequently more foreign exchanges to stabilize the economy. Surprisingly, the impact of oil price on inflation rate (LINF) was found to be negative and statistically significant only at lag 6, suggesting that oil price does not immediately exert influence on the rate of inflation in Nigeria until the next 6 years.