Macroeconomic Transmission Mechanisms of Crude Oil Price Shocks in Nigeria: a Seemingly Unrelated Regression Analysis
Year: 2026
Type: article
Abstract: This study investigates the macroeconomic transmission mechanisms of crude oil price (COP) shocks in Nigeria from 1990 to 2025. It maps how these shocks propagate through four structural channels: growth, price, foreign exchange, and investment. To address the limitations of separate single-equation models, we use Zellner’s Seemingly Unrelated Regression (SUR) framework. This model captures the contemporaneous correlation across five dependent variables: Real Gross Domestic Product (RGDP), Inflation (INF), Exchange Rate (EXR), Interest Rate (INT), and Unemployment (UNE). System diagnostics, supported by the Breusch-Pagan LM test, confirm the efficiency gains of using the SUR approach over Ordinary Least Squares (OLS). The empirical results show that a 10% surge in global crude prices expands real output (RGDP) by 1.24%, confirming a positive growth channel. However, this windfall also triggers cost-push inflationary pressures, with a significant positive impact on headline inflation (INF). The foreign exchange channel shows that positive oil shocks strengthen the Naira (-0.485), whereas price drops lead to currency depreciation. In the investment and labor channels, positive oil shocks reduce policy interest rates (-1.850) and lower unemployment (-2.480). Conversely, negative shocks lead to monetary tightening and higher unemployment. These findings show that while oil windfalls support short-term growth, they also feed structural inflation and cyclical unemployment. We recommend setting up structural counter-cyclical fiscal buffers, fully deregulating domestic refining capacity, and targeting monetary policy to reduce oil-driven inflation.
Language: English
Subfield: Economics and Econometrics
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W7225638556
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