Accounting for the Effects of Oil Prices on Exchange Rate in Nigeria: Empirical Evidence from Linear and Non-Linear ARDL Models
Keywords:
Linear and nonlinear ARDL, oil prices, exchange rate and oil revenue
Abstract
This study empirically examines the impact oil prices on the exchange rate in Nigeria. Time series annual dataset spanning 1980 to 2018 was estimated using the linear and nonlinear ARDL model developed by Pesaran and Shin, (1998) & Pesaran, et al. (2001) and Shin, et al. (2014); where oil prices, nominal exchange rate, interest rate, and oil revenue serves as the variables for analysis. From the result of the linear-ARDL models both the long run and short-run revealed that oil price has positive and significant impact on exchange rate. Similarly, the nonlinear model also revealed that in both the long run and the short-run, both the rising and falling oil prices have an increasing impact on exchange rate. Policy implication for the findings suggests that, the authority should hold the exchange rate constant during a stable period of oil prices in order to exert pressure on the foreign currency so that the oil prices will continue to have increasing impact on exchange rate as it was during the rising and falling periods.
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5. Alley, I., A. Asekomeh, H. Mobolaji and Y.A. Adeniran, 2014. Oil price shocks and Nigerian economic growth. Eur. Sci. J., 10: 375-391.
6. Aliyu, S.U.R., (2009). Oil price shocks and the macroeconomy of Nigeria: A non-linear approach. MPRA Paper No. 18726. http://mpra.ub.unimmuenchen.de/18726/.
7. Alimi, R. S., &Fatukasi, B. (2014). The role of oil prices and real exchange rate on the output growth in Nigeria. International Journal of Financial Economics, 3(2), 70-79.
8. Amano, R. A., & Van Norden, S. (1998). Exchange rates and oil prices. Review of International Economics, 6(4), 683-694.
9. Amano, R. A., & Van Norden, S. (1998). Oil prices and the rise and fall of the US real exchange rate. Journal of international Money and finance, 17(2), 299-316.
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11. Arize, A. C., Osang, T., &Slottje, D. J. (2000). Exchange-rate volatility and foreign trade: evidence from thirteen LDC's. Journal of Business & Economic Statistics, 18(1), 10-17.
12. Aziz, A.I.M., &Bakar, N.A.A. (2011). Oil Price & Exchange Rate: A Comparative Study between Net Oil Exporting and Net Oil Importing Countries, European Journal of Economics, Finance & Administrative Sciences, 42, 13-28.
13. Babatunde, M. A. (2015). Oil price shocks and exchange rate in Nigeria. International Journal of Energy Sector Management, 9(1), 2-19.
14. Balabanoff S. (1995b) Oil Price Changes and Economic Activity in the US and Germany. OPEC Review XXI No 3, Autumn.
15. Balassa, B. (1964). The Purchasing-Power-Parity Doctrine: A Reappraisal. Journal of Political Economy, 72, 6, 584-596.
16. Basedau, M., & Lay, J. (2009). Resource curse or rentier peace? The ambiguous effects of oil wealth and oil dependence on violent conflict. Journal of peace research, 46(6), 757-776.
17. Bashar, O. K. M. R., &Kabir, S. H. (2013). Relationship between Commodity Prices and Exchange Rate in Light of Global Financial Crisis: Evidence from Australia. International Journal of Trade, Economics and Finance, 4(5), 265-269.
18. Beckmann, J., Czudaj, R., & Arora, V. (2017). The relationship between oil prices and exchange rates: Theory and Evidence. US Energy Information Administration working paper series.
19. Beckmann, J., & Czudaj, R. (2013). Is there a homogeneous causality pattern between oil prices and currencies of oil importers and exporters? Energy Economics, 40, 665-678
20. Beckmann, J., & Czudaj, R. (2013). Oil prices and effective dollar exchange rates. International Review of Economics & Finance, 27, 621-636.
21. Beenstock M. (1995) An Econometric Model of the Oil Importing Developing Countries. Economic Modelling 12(1).
22. Bodenstein, M., Erceg, C. J., &Guerrieri, L. (2011). Oil shocks and external adjustment. Journal of International Economics, 83(2), 168-184.
23. Brian Pinto (1987). Nigeria during and after the oil boom: A policy comparison with Indonesia. The World Bank economic review, Vol. 1, No. 3: 419-445.
24. Buetzer, S., Habib, M. M., &Stracca, L. (2012). Global Exchange Rate Configurations: Do Oil Shocks Matter? European Central Bank , Working Paper Series, No: 1442.
25. Canova, F., & De Nicolo, G. (2002). Monetary disturbances matter for business fluctuations in the G-7. Journal of Monetary Economics, 49(6), 1131-1159.
26. Cassel, G. (1918). Abnormal deviations in international exchanges. The Economic Journal, 28(112), 413-415.
27. Chen, H., Liu, L., Wang, Y., & Zhu, Y. (2016). Oil price shocks and U.S. dollar exchange rates. Energy, 112, 1036–1048.
28. Chen, S. S., & Chen, H. C. (2007). Oil prices and real exchange rates. Energy Economics, 29(3), 390-404.
29. Corden W.M. (1976) Framework for Analysing the Implications of the Rise in Oil Prices. In Rybczynski T.M. (Ed) The Economics of the Oil Crisis. London: Macmillan.
30. Coudert, V., Mignon, V., &Penot, A. (2008). Oil price and the dollar. Energy Studies Review, 15(2).
31. Doğan, S., Ustaoğlu, M., &Demez, S. (2012). Relationship between Real oil price and Real exchange rate: the case of Turkey. Procedia-Social and Behavioral Sciences, 58, 1293-1300
32. Dwivedi, D.N. (2012). “Macroeconomics theory and policy” New Delhi: McGraw hill higher education. 4th edition; PP. 439-450 and PP. 513-524.
33. Elder, J., & Serletis, A. (2008). Long memory in energy futures prices. Review of Financial Economics, 17(2), 146-155.
34. Englama, A., Duke, O. O., Ogunleye, T. S., &Isma’il, F. U. (2010). Oil prices and exchange rate volatility in Nigeria: an empirical investigation. Central Bank Of Nigeria, 48(3), 31.
35. Eslamloueyan, K. &Kia, A. (2015). Determinants of the Real Exchange Rate in Oil-Producing Countries of the Middle East and North Africa: A Panel Data Investigation. Emerging Markets Finance and Trade, 51(4), 842-855.
36. Farzanegan, M., &Markwardt, G. (2007). The effects of oil price shocks on the Iranian economy, faculty of business. Germany: Dreden University of Technology, D-01062, Dresden.
37. Ferraro, Rogoff and Rossi (2015) Can Oil Prices Forecast Exchange Rates? An Empirical Analysis of the Relationship between Commodity Prices and Exchange Rates. https://www.barcelonagse.eu/sites/default/files/working_paper_pdfs/803.pdf
38. Fried E.R. & Schultze C.L. (1975) Higher Oil Prices and the World Economy: The Adjustment Problem. Washington D.C. : The Brookings Institution.
39. Ghosh, S. (2011). Examining crude oil price–Exchange rate nexus for India during the period of extreme oil price volatility. Applied Energy, 88(5), 1886-1889.
40. Grisse, C. (2010). What drives the oil-dollar correlation? Unpublished manuscript.
41. Hamilton, J.D. 1983. Oil and the macro economy since world war II. J. Political Econ., 91: 228-248.
42. Hamilton and James D, (2003). What is an oil shock? Journal of econometrics 113; 363-98.
43. Heal & Chichilnisky G. (1991) Oil and the International Economy. Oxford: Clarendon Press.
44. Huntington H.G. (1998) Crude Oil Prices and US Economic Performance: Where does the Asymmetry Reside? The Energy Journal 19(4).
45. Isah, A., Dikko, H. G., &Chinyere, E. S. (2015). Modeling the impact of crude oil price shocks on some macroeconomic variables in Nigeria using GARCH and VAR Models. American Journal of Theoretical and Applied Statistics, 4(5), 359-367.
46. Ioannidis, C., &Ka, K. (2018). The impact of oil price shocks on the term structure of interest rates. Energy Economics, 72, 601-620.
47. Jahan-Parvar, R. M, & Mohammadi, H. (2011). Oil Prices and Real Exchange Rates in Oil-Exporting Countries: A Bounds Testing Approach, Journal of Developing Areas, Tennessee State University, College of Business, 45(1), 313-322.
48. Jin, G. (2008). The impact of oil price shock and exchange rate volatility on economic growth: A comparative analysis for Russia, Japan, and China. Research Journal of International Studies, 8(11), 98-111.
49. Kejriwal, M., &Perron, P. (2010). Testing for multiple structural changes in cointegrated regression models. Journal of Business & Economic Statistics, 28(4), 503-522.
50. Kisswani, K. M., Harraf, A., &Kisswani, A. M. (2018). Revisiting the effects of oil prices on exchange rate: asymmetric evidence from the ASEAN-5 countries. Economic Change and Restructuring, 1-22.
51. Koop, G., Pesaran, M. H., & Potter, S. M. (1996). Impulse response analysis in nonlinear multivariate models. Journal of econometrics, 74(1), 119-147.
52. Krugman, P. (1987). The narrow moving band, the Dutch disease, and the competitive consequences of Mrs. Thatcher: Notes on trade in the presence of dynamic scale economies. Journal of development Economics, 27(1-2), 41-55.
53. Krugman, P. R. (1984). The international role of the dollar: theory and prospect. In Exchange rate theory and practice (pp. 261-278). University of Chicago press.
54. Krugman, P.(1983). Oil Shocks and Exchange Rate Dynamics. National Bureau of Economic Research, Inc. Chapters, in: Exchange Rates and International Macroeconomics, 259-284
55. Kutan, A. M., & Wyzan, M. L. (2005). Explaining the real exchange rate in Kazakhstan, 1996–2003: Is Kazakhstan vulnerable to the Dutch disease? Economic Systems, 29(2), 242-255.
56. Lee K.N.S. and Ratti R.A. (1995) Oil Shocks and the Macro Economy: The Role of Price Variability. The Energy Journal, 16(4).
57. Lippi, F., & Nobili, A. (2008). Oil and the macroeconomy: A structural VAR analysis with sign restrictions. CEPR Discussion Paper No. DP6830
58. Lizardo, R. A., & Mollick, A. V. (2010). Oil price fluctuations and U.S. dollar exchange rates. Energy Economics, 32(2), 399–408.
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Published
2023-05-19
How to Cite
Nasir, N., Sa’ad, S., Rafindadi, A., & Usman, A. B. (2023). Accounting for the Effects of Oil Prices on Exchange Rate in Nigeria: Empirical Evidence from Linear and Non-Linear ARDL Models. European Scientific Journal, ESJ, 17, 204. Retrieved from https://eujournal.org/index.php/esj/article/view/16762
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ESI Preprints
Copyright (c) 2023 NI. Nasir, S. Sa’ad, A.S. Rafindadi, Ali Baba Usman
This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.
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