OIL PRICE AND MACRO ECONOMIC PERFORMANCE IN NIGERIA, (1980-2020)

Abstract

This study investigated empirically the effect of oil price on inflation and exchange rate. The study spanned 1980-2020. A time series data was employed and it was sourced from World Bank Development Indicator (WDI),2021.  A Pre-estimation was conducted using descriptive statistics to examine the characteristics of the pair of variables in the model. The study showed that oil price, exchange rate and inflation rate are all significant at 5% level, it then moves further to conduct the unit root test to determine whether the series is stationary or not, in order to avoid spurious regression results. This is done by using Augmented Dickey Fuller’s test and it is found that oil price and exchange rates are stationary at first difference while inflation rate is stationary at levels. This justifies the use of short run autoregressive lag model; a bound test as a post estimation technique. The study found that there is no cointegration among the pairs of variables in the model and that a short-run relationship exists between oil price, inflation and exchange rate in Nigeria. The short-run autoregressive model result in table 5.4 also revealed that the R-squared, which is the coefficient of determination, explains that a one percentage change in oil price accounts for approximately 97% variation in inflation and exchange rate. The study therefore recommends that since the oil price is a strong determinant of the variation in inflation and exchange rate, the government should concentrate on diversifying our economy.