2012•SSRN Electronic JournalOpen access

Oil Price-Exchange Rate Nexus in Nigeria: Further Evidence from an Oil Exporting Economy

Oluwatosin Ademola Adeniyi, Olusegun A. Omisakin, Jameelah Yaqub, Abimbola Oyinlola

Abstract

This study queries the oil price-exchange rate linkage in Nigeria deploying data at daily frequency spanning January 2, 2009 to September 28, 2010. Two volatility models – the generalised autoregressive conditional heteroscedasticity (GARCH) and exponential GARCH (EGARCH) – were deployed to estimate the influence of oil price on the nominal exchange rate. The study finds that an increase in the price of oil culminates in an appreciation of the Nigerian currency against the US dollar. We also establish the asymmetric effect, with regards magnitude, of positive and negative oil price shocks on exchange rate volatility.

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Key concepts: Autoregressive conditional heteroskedasticity, Oil price, Economics, Exchange rate, Volatility (finance), Heteroscedasticity, Us dollar, Econometrics