The paper seeks to quantitatively assess the impact of exchange rate volatility on non oil export flows in Nigeria. Theoretically, volatility-trade IntroductionResearch related to exchange rate management still remains of interest to economists, especially in developing countries, despite a relatively enormous body of literature in the area. This is largely because the exchange rate in whatever conceptualization, is not only an important relative price, which connects domestic and world markets for goods and assets, but it also signals the competitiveness of a country's exchange power vis-à-vis the rest of the world in a pure market. Besides, it also serves as an anchor which supports sustainable internal and external macroeconomic balances over the medium-to-long term. There is, however, no simple answer to what determine the equilibrium exchange rate, and estimating equilibrium exchange rates and the degree of exchange rate misalignment remains one of the most challenging empirical problems in open-economy macroeconomics (Williamson, 1994). 2The fundamental difficulty is that the equilibrium value of the exchange rate is not observable. While the exchange rate misalignment refers to a situation in which a country's actual exchange rate deviates from such an unobservable equilibrium, an exchange rate is said to be "undervalued" when it depreciates more than its equilibrium, and "overvalued" when it appreciates more than its equilibrium. The issue is, unless the "equilibrium" is explicitly specified, the concept of exchange rate misalignment remains subjective. The problem of subjectivity is, especially so, according to Chang and David (2005) because exchange rate equilibrium or misalignment is measured over different time horizons.Notwithstanding, Edwards (1989) states that the equilibrium real exchange rate (RER) prevails when given sustainable values for other relevant variables, such as terms of trade, capital and aid flows, and technology, the economy achieves both internal and external equilibrium.There is growing agreement in the literature that prolonged and substantial exchange rate misalignment can create severe macroeconomic disequilibria and the correction of external balance will require both exchange rate devaluation and demand management policies. The main intuition behind this is that an increase in exchange rate volatility leads to uncertainty which might have a negative impact on trade flows or according to Anderton and Skudely (2001) the economic logic underpinning the negative link is the aversion of firms to engage in a risky activity, namely trade. Baldwin, Skudelny and Taglioni (2005) discovered that the effect of exchange rate uncertainty on trade in the European Union (EU) countries is negative; trade increases as volatility falls and gets progressively larger as volatility approaches zero. While numerous studies were conducted on the extent of naira exchange rate and its misalignment in Nigeria (see Soludo and Adenikinju, 1997;Agu, 2002;Omotosho and Wambai, 2005;Obaseki, ...

Nowadays, the impact of oil price shocks is pervasive as it virtually affects all facets of human endeavor. As such, it is pertinent that we should know the relationship between oil price shocks and the macroeconomy. Therefore, this paper assesses empirically, the effects of oil price shocks on the real macroeconomic activity in Nigeria. Granger causality tests and multivariate VAR analysis were carried out using both linear and non-linear specifications. Inter alia, the latter category includes two approaches employed in the literature, namely, the asymmetric and net specifications oil price specifications. The paper 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, utilizing the Wald and the Granger multivariate and bivariate causality tests, results from the latter indicate that linear price change and all the other oil price transformations are significant for the system as a whole. The Wald test indicates that our oil price coefficients in linear and asymmetric specifications are statistically significant. JEL Classification Codes E32, E37Key words: Oil Shocks, Macroeconomy, Granger Causality, Asymmetry, Vector Autoregressive IntroductionAs an oil exporter and importer of refined petroleum products, Nigeria is potentially vulnerable to oil price volatility. A large body of research suggests that oil price volatility tends to exert a positive effect on the GDP growth for a net oil exporting country and a negative effect on net oil importing countries. Theoretical literature has identified the transmission mechanisms through which oil prices affect real economic activity to include both supply and demand channels. The supply side effects relate to the fact that crude oil is a basic input to production and commerce, and hence an increase in oil price leads to a rise in production and distribution costs that induces firms to lower output. Changes in oil price also entail demand-side effects on consumption and investment. Consumption is affected indirectly through its positive relation with disposable income while investment is adversely affected indirectly because such increase in oil price also 1 . Shehu Usman Rano Aliyu, PhD, is an Associate Professor in the Department of Economics, Bayero University, Kano and also worked as a visiting scholar on Sabbatical leave in the Research Department of Central Bank of Nigeria. Email: susaliyu@yahoo.co.uk, Mobile: +2348037875246.2 affects firms' input prices and thereby increasing their costs. Oil price changes also influence foreign exchange markets and generate stock exchange panics, higher interest rate, produce inflation and eventually lead to monetary and financial instability...

The paper seeks to quantitatively assess the impact of exchange rate volatility on non oil export flows in Nigeria. Theoretically, volatility-trade IntroductionResearch related to exchange rate management still remains of interest to economists, especially in developing countries, despite a relatively enormous body of literature in the area. This is largely because the exchange rate in whatever conceptualization, is not only an important relative price, which connects domestic and world markets for goods and assets, but it also signals the competitiveness of a country's exchange power vis-à-vis the rest of the world in a pure market. Besides, it also serves as an anchor which supports sustainable internal and external macroeconomic balances over the medium-to-long term. There is, however, no simple answer to what determine the equilibrium exchange rate, and estimating equilibrium exchange rates and the degree of exchange rate misalignment remains one of the most challenging empirical problems in open-economy macroeconomics (Williamson, 1994). 2The fundamental difficulty is that the equilibrium value of the exchange rate is not observable. While the exchange rate misalignment refers to a situation in which a country's actual exchange rate deviates from such an unobservable equilibrium, an exchange rate is said to be "undervalued" when it depreciates more than its equilibrium, and "overvalued" when it appreciates more than its equilibrium. The issue is, unless the "equilibrium" is explicitly specified, the concept of exchange rate misalignment remains subjective. The problem of subjectivity is, especially so, according to Chang and David (2005) because exchange rate equilibrium or misalignment is measured over different time horizons.Notwithstanding, Edwards (1989) states that the equilibrium real exchange rate (RER) prevails when given sustainable values for other relevant variables, such as terms of trade, capital and aid flows, and technology, the economy achieves both internal and external equilibrium.There is growing agreement in the literature that prolonged and substantial exchange rate misalignment can create severe macroeconomic disequilibria and the correction of external balance will require both exchange rate devaluation and demand management policies. The main intuition behind this is that an increase in exchange rate volatility leads to uncertainty which might have a negative impact on trade flows or according to Anderton and Skudely (2001) the economic logic underpinning the negative link is the aversion of firms to engage in a risky activity, namely trade. Baldwin, Skudelny and Taglioni (2005) discovered that the effect of exchange rate uncertainty on trade in the European Union (EU) countries is negative; trade increases as volatility falls and gets progressively larger as volatility approaches zero. While numerous studies were conducted on the extent of naira exchange rate and its misalignment in Nigeria (see Soludo and Adenikinju, 1997;Agu, 2002;Omotosho and Wambai, 2005;Obaseki, ...

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