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OIL PRICE BUBBLES AND EXCHANGE RATE MOVEMENT IN NIGERIA
Abstract. The study examined the impact of oil price bubble on naira exchange rate in Nigeria for the period of 1990-2020. Secondary data was collected from World development indicators and CBN statistical bulletin. Descriptive statistics, unit root test, co-integration test, granger causality test, variance decomposition and vector autoregressive model were conducted. Findings revealed that first and second period lag of oil price bubble have negative effect on exchange rate movement in Nigeria while first period lag was not significant, second period lag was significant at 5% level. The study recommended that there is need for policymakers to be cognizant of oil prices in determining appropriate exchange rate equilibrium. Thus, when oil price changes take place, relevant monetary policy measures should be employed to stabilize the unanticipated impacts on exchange rates that may distort the economy. In addition, diversifying away from oil to other non-oil activities that would generate foreign exchange should be a continuous policy pursuit. Also, the revenue generated from oil should be channelled into creation of necessary and adequate infrastructural facilities in order to encourage small industries in producing locally made goods. By this, the importation of goods will reduce and the trade balance becomes favourable.
Keywords: Oil Price, Exchange Rate, VAR Model, Nigerian Economy.