TITLE:
External Sector Responses to Oil Price Shocks: A Structural System Model for Nigeria
AUTHORS:
Chukwuemeka Onyimadu
KEYWORDS:
Exogenous Shocks, Diversification, Macroeconomic Modeling, Economic Simulation, Uncertainty
JOURNAL NAME:
Theoretical Economics Letters,
Vol.9 No.8,
December
11,
2019
ABSTRACT: This study critically examines the effects of
specific exogenous shocks—oil price shocks on Nigeria’s external
sector. Employing a Structural Macroeconomic Model (SMM) comprising of ten behavioural equations and four identities with
quarterly data spanning from 1981 to 2015, the SMM simulations of the external
sector found that oil price shocks do have significant impacts on the
components of Nigeria’s external sector. Specifically, while oil price shocks
elicited varying responses from all components of Nigeria’s external sector
components, the simulated results showed very limited evidence of asymmetry in
the responses to both positive and negative oil price shocks. For policy, the
simulated responses of capital financial flows, foreign debt flows, imports,
nominal exchange rates, reserves, remittances, and capital financial flows,
reflect the over-dependence of the Nigerian economy on crude oil, and the
justifiable need to diversify the Nigerian economy away from the oil sector.