Accessing Oil Price Shocks AndExchange Rate Volatility in Nigeria
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The recent fall in the price of crude oil in the international market is sending economic and political shocks around the world. The hardest hit has been countries like Nigeria whose economies depend largely on oil for appreciable percentage of their foreign exchange earnings. The study examined the effects of oil price shocks on exchange rate volatility in Nigeria using monthly data covering the period 1986:01 to 2015:11.The GARCH models employed are GARCH, PARCH and
EGARCH, based on normal, student-t and GED distribution respectively. The study found out that real exchange rate fluctuation in Nigeria is significantly influenced by oil price fluctuations and a strong positive correlation between exchange rate return and future oil price volatility. We therefore recommend that any policy to address the issue of exchange rate fluctuations in Nigeria should give priority attention to oil price fluctuation of the variables as this will help to enhance the real exchange rate in Nigeria.
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