Oil Price Shocks and Inflation Dynamics in Nigeria: Sensitivity of Unit Root to Structural Breaks
International Journal of Business and Economics Research
Volume 8, Issue 2, April 2019, Pages: 58-64
Received: Jan. 3, 2019;
Accepted: Feb. 22, 2019;
Published: May 17, 2019
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Joseph Chukwudi Odionye, Department of Economics, Faculty of Business Administration, Abia State University, Uturu, Nigeria
Okanta Sunday Ukeje, Department of Banking and Finance, Faculty of Business Administration, Abia State University, Uturu, Nigeria
Augustine Chika Odo, Department of Economics, Faculty of Management and Social Sciences, Godfrey Okoye University, Enugu, Nigeria
Motivated by the prevalence of misleading inference in time series occasioned by failure to account for structural breaks in series as volatile as oil price in Nigerian specific studies, this study sought to find out whether structural breaks matter in studying the response of inflation to oil price shocks. The study employed Zivot-Andrews unit root test with structural break to compare the unit root result with the conventional ADF result while the local projection impulse response function (LPIRF) was used to determine the response of inflation dynamics to oil price shocks in Nigeria from 1981 to 2016. The unit root test shows that failure to account for structural break in unit root of a volatile series can produce wrong inference. The LPIRF results suggestedthat inflation responds significantly to oil price shocks and that there exists a higher persistence level of oil price shocksin exchange rate than inflation. Furthermore, the counterfactual result conditioned on global oil market behavior shows that inflation responds significantly to oil price due to global oil market behavior.
Joseph Chukwudi Odionye,
Okanta Sunday Ukeje,
Augustine Chika Odo,
Oil Price Shocks and Inflation Dynamics in Nigeria: Sensitivity of Unit Root to Structural Breaks, International Journal of Business and Economics Research.
Vol. 8, No. 2,
2019, pp. 58-64.
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