Asymmetric effects of crude oil price fluctuations on exchange rate in Nigeria

Abstract

This study examines the asymmetric effects of crude oil price fluctuations on exchange rate in Nigeria from 1980-2021. Using a non-linear autoregressive distributed lag (NARDL) model and analyze the effect of positive and negative oil price shocks on exchange rate. The findings revealed that oil price increases have positive effect on exchange rates in the long run. Likewise decreases in crude oil price have a negative effect on exchange rate in the long run. Conversely, oil price decreases have a negative effect on both exchange rates. Additionally, our results show that interest rate and control of corruption have positive effect on exchange rates both in the long run and short run, while governance effectiveness have negative effect on exchange rate in both long run and short run. We proposed policy recommendations to mitigate the adverse effects of oil price fluctuations by constructions more and up-to-date refineries, establishment and strengthen a sovereign wealth fund and ensuring transparency and accountability.