External Sector Responses to Oil Price Shocks: A Structural System Model for Nigeria

Abstract

This study critically examines the effects of specific exogenous shocks-oil price shocks on Nigeria's external sector. Employing a Structural Macroeconomic Model (SMM) comprising of ten behavioural equations and four identities with quarterly data spanning from 1981 to 2015, the SMM simulations of the external sector found that oil price shocks do have significant impacts on the components of Nigeria's external sector. Specifically, while oil price shocks elicited varying responses from all components of Nigeria's external sector components, the simulated results showed very limited evidence of asymmetry in the responses to both positive and negative oil price shocks. For policy, the simulated responses of capital financial flows, foreign debt flows, imports, nominal exchange rates, reserves, remittances, and capital financial flows, reflect the over-dependence of the Nigerian economy on crude oil, and the justifiable need to diversify the Nigerian economy away from the oil sector.

Modelling sectoral sensitivity to macroeconomic shocks: Evidence from Nigeria

“…Based on the foregoing, it is imperative to examine the sensitivity of the various sectors of the Nigerian economy to macroeconomic shocks relating to oil price fluctuations and policy shifts, with a view to suggesting measures to become resilient against future shocks. Previous studies focused on the effects of shocks on one or two sectors only (Oyelami & Olomola, 2016;Obi, Awujola & Ogwuche, 2016;Onyimadu, 2019), simultaneously ignoring the interlinkages among the sectors. Evidence abounds that oil price shocks have far-reaching effects on more than one economic sector (Aminu & Ogunjimi, 2019).…”