Global economic activity, crude oil price and production, stock market behaviour and the Nigeria-US exchange rate

Abstract

This paper investigates the dynamic relationship among oil price, Nigeria-US exchange rate, stock market activity, Kilian's global economic activity index, and global oil production. We develop a robust, stable single-equation error correction model where the exchange rate solely bears the burden of short-run adjustments with causal influences from the rest of the variables included in the model. We find a role for asymmetry in the long run, confirming the presence of equilibrium-path adjustment asymmetry and suggesting that the positive and negative variations must be accounted for in designing the policymaking process to enforce stable exchange rate movement. By comparing the linear and nonlinear models, we find that the two models are complementary and that each is horizon-bound in its forecasting ability. • Link between oil price, Nigeria exchange rate, equity, global activity index and oil production. • A robust, stable single-equation error correction model is developed. • We find a role for asymmetry in the long-run, confirming the presence of equilibrium-path. • Find that the positive and negative variations must be adopted in model building. • We find linear and nonlinear models as complementary.