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J. Risk Financial Manag. 2019, 12(1), 43; https://doi.org/10.3390/jrfm12010043

Effects of Global Oil Price on Exchange Rate, Trade Balance, and Reserves in Nigeria: A Frequency Domain Causality Approach

Economics Department, Obafemi Awolowo University, Ile-Ife 220282, Nigeria
Received: 2 January 2019 / Revised: 16 February 2019 / Accepted: 25 February 2019 / Published: 13 March 2019
(This article belongs to the Special Issue Applied Econometrics)
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Abstract

This study investigated the relative Granger causal effects of oil price on exchange rate, trade balance, and foreign reserve in Nigeria. We used seasonally adjusted quarterly data from 1986Q4 to 2018Q1 to remove predictable changes in the series. Given the non-stationarity of our variables, we found cointegration to exist only between oil price and foreign reserve. The presence of cointegration implied the existence of long run relationship between the variables. The Granger causality result showed that oil price strongly Granger caused foreign reserve in the short period. However, no Granger causal relationships were found between oil price and trade balance and for oil price and exchange rate. The implication of the result is that Nigerian government should not rely solely on oil price to sustain her reserve but to diversify the economy towards non-resource production and export for foreign exchange generation. View Full-Text
Keywords: oil price; exchange rate; trade balance; cointegration; frequency domain causality; Nigeria oil price; exchange rate; trade balance; cointegration; frequency domain causality; Nigeria
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This is an open access article distributed under the Creative Commons Attribution License which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited (CC BY 4.0).
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Olayungbo, D.O. Effects of Global Oil Price on Exchange Rate, Trade Balance, and Reserves in Nigeria: A Frequency Domain Causality Approach. J. Risk Financial Manag. 2019, 12, 43.

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