Authors : Olusegun Omisakin, Oluwatosin Adeniyi and Ayoola Omojolaibi
Abstract: This study examines the short run impact dynamics of energy price volatility on the macroeconomic performance in Nigeria. We employ six fiscal and monetary variables, which are: Gross domestic product, energy price (proxied by oil price), government expenditure, oil revenue, Money Supply (MS) consumer price index. All variables are expressed in their real form. The study scope ranges from 1970-2006. Having verified the stationarity status of the variables under consideration where, all are integrated after first difference, the study reveals that there exist at least three long run relationships among the variables. Consequently, the study employs the Vector Error Correction modeling, which focuses more on the short run behavior or responses of the variables to energy price volatility in Nigeria. Evidences from the result of VEC equations show that in the short run, oil revenue responds positively to a change in the energy (oil) price. It shows that 10% increase in the energy price brought about 79% increase in oil revenue, 45% increase in government expenditure, 17% increase in money supply, 11% decrease in CPI and 31% increase in GDP in the short run. Thus, the empirical results show how vulnerable the Nigerian economy is to the international energy price volatility.
Olusegun Omisakin, Oluwatosin Adeniyi and Ayoola Omojolaibi, 2009. A Vector Error Correction Modeling of Energy Price Volatility of an Oil Dependent Economy: The Case of Nigeria. Pakistan Journal of Social Sciences, 6: 207-213.