Title: Oil Price Shocks and the Nigeria Economy: A Variance Autoregressive (VAR) Model
Abstract: Oil prices have been highly volatile since the end of World War II. The volatility becomes even more serious inrecent time. This has implications for the economies of oil exporting countries, particularly oil dependentcountries like Nigeria. The paper examined the impact of these fluctuations on macroeconomic of Nigeria.Using VAR, the impact of crude oil price changes on four key macroeconomic variables was examined. Theresults show that oil prices have significant impact on real GDP, money supply and unemployment. It impact onthe fourth variable, consumer price index is not significant. This implies that three key macroeconomic variablesin Nigeria are significantly explained by exogenous and the highly volatile variable. Hence, the economy isvulnerable to external shocks. Consequently, the macroeconomic performance will be volatile andmacroeconomic management will become difficult. Diversification of the economy is necessary in order tominimize the consequences of external shocks.