1. EFFECTS OF FLUCTUATIONS IN OIL PRICE ON MACROECONOMIC VARIABLES IN NIGERIA
Olaide Kayode Emmanuel, Carleton University Ottawa, Canada
34TH USAEE/IAEE NORTH AMERICAN CONFERENCE, TULSA, OKLAHOMA. OCTOBER 24, 2016

2. AIM AND SIGNIFICANCE
The purpose of this study is to re-examine how the volatility in oil prices impacts on the Nigerian economy, as an energy-dependent economy and a major world producer and exporter of oil using certain key macroeconomic variables
Output, interest rate, inflation rate, unemployment rate, money supply, government expenditure and exchange rate
Since the discovery of oil in commercial quantities in Nigeria, oil has become the main stay of the Nigerian economy

3. LITERATURE REVIEW Hamilton’s (1983); Burbidge and Harrison (1984)
Lescaroux and Mignon (2008); LeBlanc and Chinn (2004)
Gisser and Goodwin (1986); Ferderer (1996); Carruth, Hooker and Oswald (1998) and Hooker (2002); Guo and Kliesen (2005)
Lardic and Mignon (2006); Narayan and Narayan (2007); Narayan and Narayan (2007); Cologni and Manera (2009); Elder and Serletis (2010)
Ahmed and Wadud (2011); Jo (2013); Salim and Rafiq (2013)
Gunu and Kilishi (2010); Iwayemi and Fowowe (2010); Iwayemi and Fowowe (2010); Demachi (2012); Apere and Ijomah (2013)

4. METHODOLOGY Autoregressive distributed lag (ARDL) model:
∆ 𝑂𝑃 𝑡 = µ 1 + 𝑠=0 𝑛 𝛾 1,𝑠 ∆ 𝑂𝑃 𝑡−𝑠 + 𝑠=0 𝑛 𝛾 2,𝑠 ∆ 𝑀𝑉 𝑡−𝑠 + 𝛿 1 𝑂𝑃 𝑡−1 + 𝛿 2 𝑀𝑉 𝑡−1 + 𝜂 1,𝑡 (1)
∆ 𝑀𝑉 𝑡 = µ 2 + 𝑠=0 𝑛 𝜃 1,𝑠 ∆ 𝑂𝑃 𝑡−𝑠 + 𝑠=0 𝑛 𝜃 2,𝑠 ∆ 𝑀𝑉 𝑡−𝑠 + 𝜋 1 𝑂𝑃 𝑡−1 + 𝜋 2 𝑀𝑉 𝑡−1 + 𝜂 2,𝑡 (2)
Vectorautoregressive (VAR) model
Vector Error Correction Model (VECM)
Impulse Response Functions and Forecast Error Variance Decomposition

5. Results of unit roots test
VARIABLE
ADF
DF-GLS
RGDP
0.313
-0.325 MS
2.717
-1.169
INTR
-1.869
-1.221
INFR
-3.65
-3.623
UNEMPR
-0.166
-0.727
EXCR
-1.849
-1.333
GEXP
2.39
-1.201 OP
-1.028
-1.179
DRGDP
-4.4
-4.352
DMS
-4.214
-3.645
DINTR
-7.438
-7.336
DINFR
-6.497
-6.581
DUNEMPR
-3.835
-3.764
DEXCR
-4.197
-4.137
DGEXP
-3.943
-3.75
DOP
-5.795
-5.61
*The critical values of t-statistics for the ADF are and (and that of DFGLS, and-2.923) at 5% and 10% level of significance respectively

6. Results of ARDL cointegration estimation
VARIABLE
F-STATISTICS
RGDP/OP
1.38
OP/RGDP
0.79
MS/OP
10.66
OP/MS
1.46
INTR/OP
1.44
OP/INTR
0.36
INFR/OP
1.55
OP/INFR
0.42
UNEMPR/OP
1.62
OP/UNEMPR
1.48
EXCR/OP
0.06
OP/EXCR
1.69
GEXP/OP
5.81
OP/GEXP
1.57
*The critical value ranges of F-statistics are and at 5% and 10% level of significance respectively [Paresh Kumar Narayan (2005)].

7. Results for the VAR Granger causality Wald tests
Equation
Excluded
chi2 df
Prob > chi2
D_OP
D.RGDP 1
0.68
ALL
D_RGDP
D.OP
2.3844
0.123

8. Results for the VAR Granger causality Wald tests
Equation
Excluded
chi2 df
Prob > chi2 OP
INTR
.37504 1
0.540
ALL
.17277
0.678

9. Results for the VAR Granger causality Wald tests
Equation
Excluded
chi2 df
Prob > chi2 OP
INFR
.22812 1
0.633
ALL
.80123
0.371

10. Results for the VAR Granger causality Wald tests
Equation
Excluded
chi2 df
Prob > chi2
D_OP
D.UNEMPR
.07546 1
0.784
ALL
D.OP
.16813
0.682

11. Results for the VAR Granger causality Wald tests
Equation
Excluded
chi2 df
Prob > chi2
D_OP
D.EXCR
2.3068 1
0.129
ALL
D.OP
.03163
0.859

12. Test results for the VECMs
VARIABLE
chi2
Prob > chi2
ECT t-STATISTIC
P>|t|
OP/MS
0.3549
-0.6
0.549
MS/OP
0.0000
8.31
0.000
OP/GEXP
0.4277
0.03
0.978
GEXP/OP
4.96

13. MODEL SPECIFICATION TEST
Parameter instability test for DOP versus DRGDP VAR specification

14. Parameter instability test for OP versus INTR VAR specification

15. Parameter instability test for OP versus INFR VAR specification

16. Parameter instability test for DOP versus DUNEMPR VAR specification

17. Parameter instability test for DOP versus DEXCR VAR specification

18. Parameter instability test for OP versus MS VEC specification

19. Results of IRFs
For the VAR models, the IRF dies out for each the variables real GDP, interest rate, inflation rate, unemployment rate, and exchange rate; confirming the results that the oil price has no impact on these variables.
For the VEC models, the IRF shows that a shock to the oil price has a permanent effect on each of the variables money supply and government expenditure.

20. Results of FEVD
The results show that none of the forecast error variance in each of the real GDP, interest rate, inflation rate, unemployment rate, and exchange rate is attributable to the shock in oil price.
A greater proportion of the forecast error variance in each of the money supply and government expenditure is due to the shock in oil price.

21. Forecasting with the VAR and VEC models
Based on this models, predicted at the levels of the variables, the oil price will rise first, and then remain constant at less than US$100 per barrel
At the first difference forecast, the figure shows that the oil price will rise first, then falls and remain constant around less than US$10 per barrel
The real GDP is expected to fall and then remain constant at less than fifty billion naira into the distant future.
The interest rate is expected to rise and then remain constant at twenty percent into the distant future.

22. Forecasting with the VAR and VEC
The inflation rate is expected to rise and then remain constant around ten percent into the distant future.
The unemployment rate is expected to fall and then remain constant at less than two percent into the distant future.
The exchange rate is expected to rise and then remain constant at less than ten percent into the distant future.
The money supply is expected to increase perpetually into the distant future.
The government expenditure is expected to increase perpetually into the distant future.

23. CONCLUSION AND POLICY IMPLICATIONS
Nigeria has not used the huge revenue realized from its oil and gas sector during the period of oil windfalls and rising oil prices to grow its economy
Inflation in Nigeria is a monetary phenomenon as a response of the domestic price levels to the increase in money supply, which responds to oil price.
It is therefore suggested that Nigeria needs to diversify its economy and sources of revenue; maintain prudent fiscal management and fiscal discipline; make the governmental institutions, agencies and parastatals more transparent at all tiers of government, and curb corruption and financial misappropriation, especially in the oil and gas sector of the economy.

24. THANK YOU