Modelling the Monetary Impact of Oil Price Volatility in Nigeria: Evidence from GARCH Models

Abstract

This paper investigated the impact of oil price volatility on some monetary variables in Nigeria under the framework of the GARCH models. The paper utilized three alternative error distributions in order to assist in providing better model fits and thus avoid biased results. Using monthly series over a period of 2006-2019, our findings revealed that, apart from the usual normal error distribution other error distributions perform better in the modelling of the impact of oil price volatility on monetary variables in Nigeria. The findings of the study also revealed that the asymmetric parameters of the models show evidence of leverage effect and oil price volatility plays a significant role in the determination of volatility of monetary variables. We, therefore, recommend that in modelling volatility of oil price and monetary variables in Nigeria, different error distributions should be considered. Contribution/ Originality: In this study, we contribute to the literature by exploring various error distributions. This approach is pertinent because restricting the study to only normal distribution which is the usual practice could lead to biased outcomes as other error distributions can perform better. Our study can be affirmed to have evidence of originality; therefore the validity, reliability and uniqueness cannot be contested.