Theoretical Economics Letters | 2019
External Sector Responses to Oil Price Shocks: A Structural System Model for Nigeria
Abstract
This study critically examines the effects of \nspecific exogenous shocks—oil price shocks on Nigeria’s external \nsector. Employing a Structural Macroeconomic Model (SMM) comprising of ten behavioural equations and four identities with \nquarterly data spanning from 1981 to 2015, the SMM simulations of the external \nsector found that oil price shocks do have significant impacts on the \ncomponents of Nigeria’s external sector. Specifically, while oil price shocks \nelicited varying responses from all components of Nigeria’s external sector \ncomponents, the simulated results showed very limited evidence of asymmetry in \nthe responses to both positive and negative oil price shocks. For policy, the \nsimulated responses of capital financial flows, foreign debt flows, imports, \nnominal exchange rates, reserves, remittances, and capital financial flows, \nreflect the over-dependence of the Nigerian economy on crude oil, and the \njustifiable need to diversify the Nigerian economy away from the oil sector.