THE IMPACT OF CRUDE OIL PRICE SHOCKS ON THE NIGERIAN EXCHANGE RATE: A TIME SERIES ANALYSIS USING ARIMAX MODELS

R. O David,; K. L Zangdap,; C. N Nnamani; A. I Ishaq; J Obalowu

R. O David, Department of Statistics, Ahmadu Bello University, Zaria
K. L Zangdap, Department of Statistics, Ahmadu Bello University, Zaria
C. N Nnamani Department of Statistics, Ahmadu Bello University, Zaria
A. I Ishaq Department of Statistics, Ahmadu Bello University, Zaria
J Obalowu Department of Statistics, University of Ilorin, Ilorin

Abstract

Fluctuations in crude oil prices significantly impact the value of Nigeria's Naira relative to the US Dollar. Understanding the link between crude oil price shocks and exchange rate movements is vital for effective monetary policy and economic stability. This study examines the effect of crude oil price shocks on the USD/NGN exchange rate using time series analysis. Historical data on crude oil prices and the exchange rate were analyzed with ARIMAX models, incorporating crude oil prices as an exogenous variable. The ARIMAX (1,1,1) model provided the best fit based on AIC and BIC criteria, with diagnostic checks revealing no autocorrelation in residuals, ensuring model adequacy. The findings suggest that crude oil price changes exert a small negative effect on the exchange rate, but historical values and past errors play significant roles. The study concludes that while crude oil price changes influence the exchange rate, additional factors like inflation, foreign reserves, and government policies could have a greater effect. Recommendations include diversifying the economy and implementing policy reforms to improve exchange rate stability in Nigeria.

Author Biographies

R. O David,, Department of Statistics, Ahmadu Bello University, Zaria

Department of Statistics, Ahmadu Bello University, Zaria

K. L Zangdap,, Department of Statistics, Ahmadu Bello University, Zaria

Department of Statistics, Ahmadu Bello University, Zaria

C. N Nnamani, Department of Statistics, Ahmadu Bello University, Zaria

Department of Statistics, Ahmadu Bello University, Zaria

A. I Ishaq, Department of Statistics, Ahmadu Bello University, Zaria

Department of Statistics, Ahmadu Bello University, Zaria

J Obalowu, Department of Statistics, University of Ilorin, Ilorin

Department of Statistics, University of Ilorin, Ilorin