Open AccessEXCHANGE RATE RESPONSE TO OIL PRICE AND POLITICAL SHOCKS: WHAT CAN NIGERIA DO?
Author(s) -
Augustine Adebayo Kutu,
David Alaba Alori,
Harold Ngalawa
Publication year - 2021
Publication title -
journal of life economics
Language(s) - English
Resource type - Journals
ISSN - 2148-4139
DOI - 10.15637/jlecon.8.2.08
Subject(s) - exchange rate , political instability , economics , institution , accountability , politics , transparency (behavior) , monetary economics , corporate governance , oil price , political science , finance , law
This study determines how political institution (factor) and oil prices play a significant role in exchange rate instabilities in Nigeria between and . Employing a VECM model with time series and structural analysis, the study decomposes the oil prices into positive and negative shocks. The findings show a symmetric impact from positive and negative oil shocks while political/institutional factor, on the contrary, indicates an asymmetric impact on exchange rates. The study, therefore, recommends that strong political institution that promotes good governance, accountability and transparency should be put in place. This will untimely reduce the cost of importation that prevents the country from reaping the benefits of positive oil price shocks. While this study employs one of the unique approaches to the study of exchange rates worldwide, it also provides insights to how institutional/political factor contribute to exchange rate instability in Nigeria.