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Energy Policy 39 (2011) 603–612

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Energy Policy journal homepage: www.elsevier.com/locate/enpol

Impact of oil price shocks on selected macroeconomic variables in Nigeria
Akin Iwayemi 1, Babajide Fowowe n
Department of Economics, University of Ibadan, Ibadan, Nigeria

a r t i c l e in f o
Article history: Received 14 January 2010 Accepted 20 October 2010 Available online 11 November 2010 Keywords: Oil price shocks Nonlinear models Nigeria

abstract
The impact of oil price shocks on the macroeconomy has received a great deal of attention since the 1970 s. Initially, many empirical studies found a significant negative effect between oil price shocks and GDP but more recently, empirical studies have reported an insignificant relationship between oil shocks and the macroeconomy. A key feature of existing research is that it applies predominantly to advanced, oil-importing countries. For oil-exporting countries, different conclusions are expected but this can only be ascertained empirically. This study conducts an empirical analysis of the effects of oil price shocks on a developing country oil-exporter—Nigeria. Our findings showed that oil price shocks do not have a major impact on most macroeconomic variables in Nigeria. The results of the Granger-causality tests, impulse response functions, and variance decomposition analysis all showed that different measures of linear and positive oil shocks have not caused output, government expenditure, inflation, and the real exchange rate. The tests support the existence of asymmetric effects of oil price shocks because we find that negative oil shocks significantly cause output and the real exchange rate. & 2010 Elsevier Ltd. All rights reserved.

1. Introduction The impact of oil price shocks on the macroeconomy has received a great deal of attention since the 1970s when the recessions experienced in USA and some European countries were preceded by oil shocks, which mainly

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