An ARDL Analysis of the Effect of Oil Price Fluctuations on Inflation in Nigeria (2010 - 2017)

ABSTARCT

Nigeria is still   largely  dependent on  crude  oil to  satisfy  its oil  needs   since crude  oil   is animportant  part  of her economy. This  dependency on crude oil triggers most macroeconomicindicators such as inflation to react to fluctuations in the world price of oil, making the economyvulnerable to fluctuations in the world oil price. This study therefore employs Auto RegressiveDistributive Lag analysis to examine the effects of oil price fluctuations on inflation in Nigeriausing   monthly   data   from   January   2010   to   December   2017.   Unlike  studies   conducted   ondeveloped countries, this study is done for Nigeria as a developing nation.This study aimed at examining the  effect of oil price fluctuations on inflation in Nigeria. Toachieve this aim, three specific objectives were examined. This study first examines the trend ofoil price fluctuations and inflation. The next objective was to examine the short run effects of oilprice fluctuations on inflation. Lastly, the third objective was to examine the long run effects ofoil price fluctuations on inflation.The result indicates a positive effect of oil price on inflation in the short run and a negative effectin the long run. This study reveals that in Nigeria as a developing country, oil price increaseresults in higher inflation directly.To reduce inflationary pressure in Nigeria, government should diversify the economy and alsofind a stable exchange rate system. 

CHAPTER ONE INTRODUCTION

1.1Background of the Study

1.2Problem Statement

1.3

Research question

1.4 Objectives of the study

1.5 Hypothesis of the study

1.6 Scope of the Study

1.7 Significance of the study

1.8 Organization of the study

CHAPTER 2 

LITERATURE REVIEW

2.1 Introduction

2.2 Conceptual Review

2.1 Oil Price Fluctuations

2.2 Concept Inflation

2.3 Theoretical Review

2.3.1 AD-AS Model

2.3.2 Monetarists and Structuralist

2.4 Empirical Literature

2.5 Theoretical Framework

2.6 Summary

CHAPTER 3

RESEARCH METHODOLOGY

3.1 Introduction

3.2 Source of Data

3.4 Empirical Model Specification

3.5 Definition and Measurement of Variables

3.6 Techniques of Data Analysis

3.6.1 Stationarity Test

3.6.2 ARDL Bound Cointegration Test

3.6.3 ARDL Short-run and Long-run Estimation

3.7 Diagnostic Test

3.8 Summary

CHAPTER 4

RESULT AND DISCUSSIONS

4.1 Introduction

4.2 Descriptive Analysis

4.3 Trends of Oil Price Fluctuations and Inflation in Nigeria (2010 – 2017)

4.4 Result of Pre-Estimation Tests

4.4.1 Test for Multicolinearity Using Correlation Matrix

4.4.2 Unit Root Test

4.4.3 ARDL Bound Cointegration Test

4.5 Result of Short-run effects of Oil price Fluctuations on Inflation

4.6 Result of Long-run effect of Oil Price Fluctuations on Inflation

4.7 Result of Post-Estimation Test

4.7.1 Auto-Correlation Test

4.7.2 Stability Test

CHAPTER FIVE

SUMMARY, CONCLUSION AND RECOMMENDATIONS

Introduction

5.2 Summary of the study

5.3 Conclusions

5.4

Recommendations 

REFERENCES