DYNAMIC ANALYSIS OF THE INTERACTIVE EFFECT OF EXCHANGE RATE AND CRUDE OIL PRICE ON WELFARE IN NIGERIA (2010-2022)
DOI:
https://doi.org/10.18623/rvd.v22.n6.4008Keywords:
Crude Price, Welfare, Volatility, ARDL, NigeriaAbstract
This research work carried out a dynamic analysis of the interactive effect of exchange rate and crude oil price on welfare in Nigeria, covering the period 2010 to 2022. The data used for the study were drawn from the CBN statistical bulletin and covered the period 2010Q1to 2022Q3. Exchange rate and crude oil price volatility series were used as the independent variables, whereas real gross domestic product per capita was used as the dependent variable. GARCH (1,1) and Autoregressive Distributed Lag Model were used as the key estimation techniques in this study. The test for heteroscedasticity following the ARMA Model in a GARCH 1,1 series tested the first hypothesis for volatility cluster, while the Autoregressive distributed lag model estimation method was adopted to test hypotheses two, three, and four. In terms of findings, firstly, the study revealed that the exchange rate and crude price in Nigeria are sufficiently volatile to provide grounds for an investigation of their welfare impact. It was also observed that exchange rate volatility exerts a positive influence on the welfare of Nigerians. Also, there is a significant relationship between crude volatility and welfare, on the basis of which the null hypothesis was rejected for the third hypothesis. Hence, we concluded that crude volatility exerts a significant influence on the welfare of Nigerians, even though the welfare impact was found to be negative. The investigation also concluded that the interaction of crude price and exchange rate volatility improved the welfare of Nigerians. On the basis of the findings, the study recommended that an exchange rate regime with the capacity to produce a positive welfare impact should always be adopted by the monetary authorities. This is because, in line with the observation that the exchange rate in Nigeria is not only volatile but also can elicit a positive reaction from welfare, such movement can create an adverse reaction if left uncontrolled. This is where due policy control becomes expedient. Furthermore, it is recommended that stronger policy safety-nets need to be created to ameliorate the adverse welfare effect of crude price volatility, for instance, a petrol price subsidy or any other cushioning policy. Lastly, the study further recommends that policy interdependence and interaction should be heightened to allow for adverse policy reactions to be contained by positive policy reactions.
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