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
Views 176 Downloads 25
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.
Hamilton, J. D. (1983). Oil and the macroeconomy since the World War II. Journal of Politcal Economy, 91 (2), 228-248.
Hamilton, J. D. (1996). This is what happened to oil price – Macroenonomy relationship. Journal of Monetary Economics, 38 (1996), 215-220.
Hamilton, J. D. (2009). Causes and consequences of the oil shock of 2007-08. NEBR Working paper No 15002. University of Califonia. San Diego.
Hamilton, J. D. (2010). Nonlinearities and the macroeconoic effects of oil prices. Working Paper Series. University of Califonia. San Diego.
Ekpo, A. O. (2009). Oil price shocks and Nigeria’s macro economy. Research Paper, University of Ibadan, Ibadan.
Aliyu, S. U. R. (2009). Impact of oil price shocks and exchange rate volatility on economic growth in Nigeria: An empirical investigation. MPPR, Paper No. 16319. Retrieved from http://mpra.ub,uni-muenchen.de/16319.
Wilson, A. David, U. Inyiama, O. & Beatrice, E. (2014). Oil price volatility and economic development: Stylized evidence in Nigeria. Journal of Economics and International Finance, 6(6), 125-133.
Taiwo, M., Abayomi, T. &Damilare O. (2012). Crude Oil Price, Stock Price and Some Selected Macroeconomic Indicators: Implications on the Growth of Nigeria Economy, Research Journal of Finance and Accounting, 3(2), 42-48.
Apere O. &Ijomah A. M. (2013). Macroeconomic Impact of Oil Price Levels and Volatility in Nigeria. International Journal of Academic Research in Economics and Management Sciences 2(4), 15-25.
Jorda, O. (2005). Estimation and inference of impulse responses by local projections. American Economic Review, 161-182.
Jorda, O. (2007). Joint Inference and counterfactual experimentation for impulse response function by local projection.” University of California (Davis) Working Paper series, 06-24.
Ronayne, J. B. (2011). Which Impulse Response Function? Warwick Economic Research Paper No 971.
Perron, P. (1989). The great crash, the oil price shock, and the unit root hypothesis. Econometrica, 57, 1361-1401.
Perron, P. (1997). Further evidence on breaking trend functions in macroeconomic variables. Journal of Economtrics, 80 (2), 251-270.
OPEC (2016). Organization of Petroleum Exporting Countries Annual data.
CBN (2016). Revised Guidelines for the operation of the Nigerian Inter-bank Foreign Exchange Market (IFEM). 15th June, 2016.
Mohaghegh, M. &Mehrara, M. (2011). Macroeconomic Dynamics in the Oil Exporting Countries: A Panel VAR study. International Journal of Business and Social Science, 2(21), 288-295.
Ebrahim, Z., Inderwildi, O. R. & King. D. A.(2014). Macroeconomic impacts of oil price volatility: mitigation and resilience, Front Energy review, 288-295.
Mordi, C. N. O. and Adebiyi, M. A. (2010). The Asymetric Effects of Oil Price Shocks on Output and Prices in Nigeria using a Structural VAR Model. Economic and Financial Reviews, 48 (1), 1-32.
Bondzie, E. A., Bertolomeo, G. D. and Fosu, G. O. (2014). “Oil Price Fluctuations and it Impact on Economic Growth: A Dsge Approach.” International Journal of Academic Research in Business and Social Siences, 2 (2), 217-242.
Abdulkareem, A. and Abdulhakeem, K. A. (2016). “Analysing Oil Price-Macroeconomy Volatility in Nigeria.” CBN Journal of Applied Statistics in Nigeria, 7 (1), 1-22.
Imobighe, M. D. (2015). “The Impact of Oil Price Instability on the Growth Process of the Nigerian Economy.” Journal of Resources Development and Management, 14 (2015), 56-70.
Nwanna, O. I and Eyedayi, A. M. (2016). “Impact of Crude Oil Price Volatility on Economic Growth in Nigeria.” IOSR Journal of Business and Management, 18 (6), 10-19.
Aimer, N. M. M. (2016). “The Effect of Fluctuations of Oil Price on Economic Growth of Libya.” Energy Economics Letters, 3 (2), 17-29.
Central Bank of Nigeria Statistical Bulleting (2016). CBN annual data.
Teulings, C. N. and Zubanov, N. (2014). Is economic recovery a myth? Robust estimation of impulse response. Journal of Applied Econometrics, 29 (3), 497-514.
Caselli, F. G and Roitman, A. (2016). Non-linear exchange rate pass-throughin Emerging markets. International Monetary Fund (IMF)Working Paper No. 16/1 pp 1-36.
Bai, J. and Perron, P. (2003a). Computation and analysis of multiple structural change models. Journal of Applied Economerics, 18, 1-22.
Jorda, O. (2009). Simultaneous confidence regions for impulse response function. Review of Economics and Statistics, 91 (3), 629-647.
Zivot, E. and Andrews, K. (1992). Further evidence on the great crash, the oil price shock, and the unit root hypothesis. Journal of Business and Economic Statistics, 10 (10), 251-270.
Granger C and Newbold (1974), Spurious Regression in Econometrics, Journal of Econometrics 2 (2), 111-120.
Dickey, D.A and Fuller, W. A. (1981). Likelihood ratio statistics for autoregressive time series with a unit root. Econometrica, 49 (4), 1057-1072.