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Oil Price Volatility

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Literature Review
Various literatures abound on the impact of oil price changes and macroeconomic variables both internally and externally. Hooker (1996) explored the robustness of oil price-macroeconomic relationship using granger causality test and Vector Autoregressive (VAR) system with structural stability. The result indicates a break down in the relationship and market collapse. He attributed the break down to misspecification of model rather than weaken relationship.
Mork (1989) decomposed oil price changes in real price increases and decreases for the examination of asymmetric response to oil price changes. The analysis showed asymmetric effect. Asymmetric effect implies that oil price increase has a clearly different effect from the …show more content…

Further, domestic policies, instead of oil boom causes inflation and money is the main cause of macroeconomic fluctuations.
Recently, Ebrahim, Inderwidi and King (2014) embarked on theoretical investigation of macroeconomic impact of oil price volatility. The result showed that oil price volatility constitutes a fundamental barrier to economic growth due to its damaging and destabilizing effect on macroeconomy. Precisely, they show that oil price volatility adversely affect aggregate consumption, investment, industrial production, unemployment and inflation particularly in non-OECD countries.
Wilson, David, inyiama and Beatrice (2012) examined the relationship between oil price volatility and economic development in Nigeria. Applying Ordinary Least Square and Granger Causality Test, the study shows that there is no significant relationship between oil price volatility and key macroeconomic variables (Real GDP, inflation, interest rate and exchange …show more content…

Oriakhi and Osaze (2013) examined the consequences of oil price volatility on the growth of the Nigeria economy within the period 1970 to 2010. With the use of VAR model, the study find that oil price volatility has direct impact on government expenditure, real exchange rate, and real import while real GDP and inflation are indirectly influenced by the oil price volatility. By implication the study shows that changes in oil price determine government expenditure which in turn determines the growth of the Nigerian economy.
Similarly, Azeez, Kolapo, and Ajayi (2012) examined the effect of exchange rate volatility on macroeconomic performance in Nigeria from 1980 to 2010 employing OLS and co-integration techniques. The findings of the study revealed that oil revenue and exchange rate are positively related to GDP while balance of payment is negatively related to GDP. Also, oil revenue and Balance of Payment exert negative effect while exchange rate volatility has positive effect on the

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