ANALYSING THE IMPACT OF CRUDE OIL PRICE VOLATILITY ON MONETARY POLICY IN NIGERIA

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ANALYSING THE IMPACT OF CRUDE OIL PRICE VOLATILITY ON MONETARY POLICY IN NIGERIA

Abstract:

The study analyzed the impact of crude oil price volatility on monetary policy in Nigeria for the period 1980:1 to 2010:4. The study was undertaken with two main objectives. The first objective was to estimate the extent of crude oil price volatility. And secondly, to analyze the impact of crude oil price volatility on monetary policy in Nigeria. The study used quarterly secondary data and ARCH and GARCH method to analyze the data. The results of the study shows that crude oil prices are volatile and that crude oil price volatility have significant negative impact on monetary policy, net foreign assets and crude oil export in Nigeria. However, the impact of crude oil price volatility on crude oil import was insignificantly negative. The sum of ARCH and GARCH coefficients in the money supply, net foreign asset, and crude oil export models showed that volatility is persistent (i.e. the error terms have infinite variance) while it was not persistent in the crude oil import model. This suggests that crude oil price volatility has been part of the reasons for the distortions or instability in monetary policy, net foreign asset, and crude oil export in Nigeria. Furthermore, there is ample evidence that real output, inflation and interest rates exerted significant impact on monetary policy in Nigeria. Therefore, the current surge in crude oil prices has the potentials of affecting monetary policy performance in Nigeria.

ANALYSING THE IMPACT OF CRUDE OIL PRICE VOLATILITY ON MONETARY POLICY IN NIGERIA

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