Oil price shocks and the macroeconomy of Nigeria: a non-linear approach

Abstract

This paper assesses, empirically, the effects of oil price shocks on the real macroeconomic activity in Nigeria using both the Granger causality tests and multivariate VAR analysis. The study finds evidence of both linear and non-linear impact of oil price shocks on real GDP. In particular, asymmetric oil price increases in the non-linear models are found to have positive impact on real GDP growth of a larger magnitude than asymmetric oil price decreases adversely affects real GDP. The non-linear estimation records significant improvement over the linear estimation and the one reported earlier by Aliyu (2009). Further, utilising the Wald and the Granger multivariate and bivariate causality tests, results from the latter indicate that linear oil price change and all the other oil price transformations are significant for the system as a whole. The Wald test indicates that the oil price coefficients in linear and asymmetric specifications are statistically significant.