Bullion
Keywords
Oil production, Oil prices, Prices, Exchange rate, ARDL, Granger causality, Nigeria
Abstract
The paper examines the relationship between volatility in domestic oil production, oil prices, and exchange rate in Nigeria. The study employs monthly time series data, from January 2006 to August 2018. Data for the Nigerian Bonny light oil prices (COP), Domestic Oil Production (DOP) and Exchange Rate (EXC) are obtained from the Central Bank of Nigeria (CBN) website. While, dummy variable (DUM) represents stability and instability in the Niger-Delta oil-rich region was traced from historic oil disruptions in the region. Autoregres s i ve Di s tributed Lag (ARDL)/bound testing method and pairwise granger causality were employed. Unit root test result shows that DOP is stationary at level, while COP, EXR and DUM became stationary at first difference. The empirical result from the ARDL, established that there is a long run co-integrating relation between DOP, COP, EXR and DUM. Pairwise granger causality test proves that the direction of causation runs from COPto DOP. However, DOPand EXR are found to granger cause each other (feedback effect). Moreover, the direction of causality between DOP and DUM runs from DUM to DOP. The result further indicated that COP granger causes EXR and not the reverse. The paper recommends fully involvement of natives and traditional rulers for dialogue and negotiations with the militants. The Nigerian government should also give diversification, the most needed attention, and with utmost seriousness it deserved.
Publication Title
Bullion
Issue
4
Volume
44
Recommended Citation
Faruk, Bashir Umar
(2020)
"Relationship between volatility in domestic oil production, oil price and exchange rate in Nigeria: Co-integration and Granger Causality Tests,"
Bullion: Vol. 44:
No.
4, Article 1.
Available at:
https://dc.cbn.gov.ng/bullion/vol44/iss4/1