Real Output and Oil Price Uncertainty: Evidence from an Oil Producing Country

Sudden changes in oil prices have been a major concern for countries – oil producing and non-oil producing countries alike. Due to this, we assessed the effects of such an uncertainty on the real output of Nigeria, an oil producing country, during the period 1980:1 to 2014:4. We achieved this objective by using a bivariate GARCH-in-mean VAR model that allows for an uncertainty measure. We then quantified the responses of real output to positive and negative real oil price shocks. Using the conditional standard deviation of the forecast revision of the growth in the composite refiners’ acquisition cost of crude oil deflated by US GDP deflator as our measure of oil price uncertainty, we found that uncertainty about oil prices exerted negative and significant impact on the real output of Nigeria. In addition, real output responded to positive and negative shocks to real oil prices symmetrically.