Oil price movements, exchange rate and Nigerian manufacturing sector growth: a short-run analysis

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The paper conducts a short-run analysis of the implications of oil price movements and exchange rate relationship for the Nigerian manufacturing sector growth between January 2008 and September 2017. Monthly data are extracted on variables such as oil price, exchange rate, inflation rate, interest (lending) rate, money supply and the manufacturing sector growth rate. Oil price movements are viewed in terms of both volatility and change. While EGARCH is used to estimate oil price volatility, oil price change is measured using Hamilton index for both oil price sharp drop and jump. The SVAR results indicate that exchange rate and inflation rate are more responsive to sharp drop in oil price. The two variables also have the highest impact on the manufacturing sector growth. Findings further indicate that Nigerian manufacturing sector is more affected at the cost side than the output side. This underscores the importance of tackling the inflation pressure in Nigeria from the structural perspective as against the monetary perspective.

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    • Figure 1. Oil price volatility (2008M01 to 2017M09)
    • Figure 2. Hamilton index (2008M01 to 2017M09) 1 H
    • Figure 3. Inverse Hamilton index (2008M01 to 2017M09) 1 InvH
    • Figure 4. Response to oil price volatility
    • Figure 5. Response to 1 H
    • Figure 6. Response to 1InvH
    • Figure 7. Response to inflation rate shock
    • Figure 8. Response to money supply shock
    • Figure 9. Response to lending (interest rate) shock
    • Figure 10. Response to exchange rate shock
    • Table 1. ADF unit root test
    • Table 2. Variance decomposition for the manufacturing sector growth rate
    • Table 3. Variance decomposition for the manufacturing sector growth rate
    • Table 4. Variance decomposition for the manufacturing sector growth rate