Abstract
Oil prices have been highly volatile since the end of World War II. The volatility becomes even more serious in recent time. This has implications for the economies of oil exporting countries, particularly oil dependent countries like Nigeria. The paper examined the impact of these fluctuations on macroeconomic of Nigeria. Using VAR, the impact of crude oil price changes on four key macroeconomic variables was examined. The results show that oil prices have significant impact on real GDP, money supply and unemployment. It impact on the fourth variable, consumer price index is not significant. This implies that three key macroeconomic variables in Nigeria are significantly explained by exogenous and the highly volatile variable. Hence, the economy is vulnerable to external shocks. Consequently, the macroeconomic performance will be volatile and macroeconomic management will become difficult. Diversification of the economy is necessary in order to minimize the consequences of external shocks.
Highlights
Since oil was discover in commercial quantity in Nigeria, oil has dominated the economy of the country
The objective of this paper is to examine the impact of oil price fluctuation in the Nigeria economy using some key macroeconomic variables
The study first considered the correlogram for crude oil prices (COP)
Summary
Since oil was discover in commercial quantity in Nigeria, oil has dominated the economy of the country. In Nigeria, oil accounts for more than 90 percent of its exports, 25 percent of its Gross Domestic Product (GDP), and 80 percent of its government total revenues. A small oil price changes can have a large impact on the economy. For instance a US$1 increase in the oil price in the early 1990s increased Nigeria's foreign exchange earnings by about US$650 million (2 percent of GDP) and its public revenues by US$320 million a year. Oil is an important commodity in the economy of any country in the world because it is a major source of energy for domestic and industrial use. Changes in the prices of either the crude oil or any of the end products are expected to have impact on users and the nation at large
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