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Oil Price Shocks and Inflation Dynamics in Nigeria: Sensitivity of Unit Root to Structural Breaks

Received: 3 January 2019     Accepted: 22 February 2019     Published: 17 May 2019
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Abstract

Motivated by the prevalence of misleading inference in time series occasioned by failure to account for structural breaks in series as volatile as oil price in Nigerian specific studies, this study sought to find out whether structural breaks matter in studying the response of inflation to oil price shocks. The study employed Zivot-Andrews unit root test with structural break to compare the unit root result with the conventional ADF result while the local projection impulse response function (LPIRF) was used to determine the response of inflation dynamics to oil price shocks in Nigeria from 1981 to 2016. The unit root test shows that failure to account for structural break in unit root of a volatile series can produce wrong inference. The LPIRF results suggestedthat inflation responds significantly to oil price shocks and that there exists a higher persistence level of oil price shocksin exchange rate than inflation. Furthermore, the counterfactual result conditioned on global oil market behavior shows that inflation responds significantly to oil price due to global oil market behavior.

Published in International Journal of Business and Economics Research (Volume 8, Issue 2)
DOI 10.11648/j.ijber.20190802.13
Page(s) 58-64
Creative Commons

This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.

Copyright

Copyright © The Author(s), 2019. Published by Science Publishing Group

Keywords

Oil Price, Inflation Dynamics, Shocks, Structural Break, Impulse Response

References
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[6] Aliyu, S. U. R. (2009). Impact of oil price shocks and exchange rate volatility on economic growth in Nigeria: An empirical investigation. MPPR, Paper No. 16319. Retrieved from http://mpra.ub,uni-muenchen.de/16319.
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Cite This Article
  • APA Style

    Joseph Chukwudi Odionye, Okanta Sunday Ukeje, Augustine Chika Odo. (2019). Oil Price Shocks and Inflation Dynamics in Nigeria: Sensitivity of Unit Root to Structural Breaks. International Journal of Business and Economics Research, 8(2), 58-64. https://doi.org/10.11648/j.ijber.20190802.13

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    ACS Style

    Joseph Chukwudi Odionye; Okanta Sunday Ukeje; Augustine Chika Odo. Oil Price Shocks and Inflation Dynamics in Nigeria: Sensitivity of Unit Root to Structural Breaks. Int. J. Bus. Econ. Res. 2019, 8(2), 58-64. doi: 10.11648/j.ijber.20190802.13

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    AMA Style

    Joseph Chukwudi Odionye, Okanta Sunday Ukeje, Augustine Chika Odo. Oil Price Shocks and Inflation Dynamics in Nigeria: Sensitivity of Unit Root to Structural Breaks. Int J Bus Econ Res. 2019;8(2):58-64. doi: 10.11648/j.ijber.20190802.13

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  • @article{10.11648/j.ijber.20190802.13,
      author = {Joseph Chukwudi Odionye and Okanta Sunday Ukeje and Augustine Chika Odo},
      title = {Oil Price Shocks and Inflation Dynamics in Nigeria: Sensitivity of Unit Root to Structural Breaks},
      journal = {International Journal of Business and Economics Research},
      volume = {8},
      number = {2},
      pages = {58-64},
      doi = {10.11648/j.ijber.20190802.13},
      url = {https://doi.org/10.11648/j.ijber.20190802.13},
      eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.ijber.20190802.13},
      abstract = {Motivated by the prevalence of misleading inference in time series occasioned by failure to account for structural breaks in series as volatile as oil price in Nigerian specific studies, this study sought to find out whether structural breaks matter in studying the response of inflation to oil price shocks. The study employed Zivot-Andrews unit root test with structural break to compare the unit root result with the conventional ADF result while the local projection impulse response function (LPIRF) was used to determine the response of inflation dynamics to oil price shocks in Nigeria from 1981 to 2016. The unit root test shows that failure to account for structural break in unit root of a volatile series can produce wrong inference. The LPIRF results suggestedthat inflation responds significantly to oil price shocks and that there exists a higher persistence level of oil price shocksin exchange rate than inflation. Furthermore, the counterfactual result conditioned on global oil market behavior shows that inflation responds significantly to oil price due to global oil market behavior.},
     year = {2019}
    }
    

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  • TY  - JOUR
    T1  - Oil Price Shocks and Inflation Dynamics in Nigeria: Sensitivity of Unit Root to Structural Breaks
    AU  - Joseph Chukwudi Odionye
    AU  - Okanta Sunday Ukeje
    AU  - Augustine Chika Odo
    Y1  - 2019/05/17
    PY  - 2019
    N1  - https://doi.org/10.11648/j.ijber.20190802.13
    DO  - 10.11648/j.ijber.20190802.13
    T2  - International Journal of Business and Economics Research
    JF  - International Journal of Business and Economics Research
    JO  - International Journal of Business and Economics Research
    SP  - 58
    EP  - 64
    PB  - Science Publishing Group
    SN  - 2328-756X
    UR  - https://doi.org/10.11648/j.ijber.20190802.13
    AB  - Motivated by the prevalence of misleading inference in time series occasioned by failure to account for structural breaks in series as volatile as oil price in Nigerian specific studies, this study sought to find out whether structural breaks matter in studying the response of inflation to oil price shocks. The study employed Zivot-Andrews unit root test with structural break to compare the unit root result with the conventional ADF result while the local projection impulse response function (LPIRF) was used to determine the response of inflation dynamics to oil price shocks in Nigeria from 1981 to 2016. The unit root test shows that failure to account for structural break in unit root of a volatile series can produce wrong inference. The LPIRF results suggestedthat inflation responds significantly to oil price shocks and that there exists a higher persistence level of oil price shocksin exchange rate than inflation. Furthermore, the counterfactual result conditioned on global oil market behavior shows that inflation responds significantly to oil price due to global oil market behavior.
    VL  - 8
    IS  - 2
    ER  - 

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Author Information
  • Department of Economics, Faculty of Business Administration, Abia State University, Uturu, Nigeria

  • Department of Banking and Finance, Faculty of Business Administration, Abia State University, Uturu, Nigeria

  • Department of Economics, Faculty of Management and Social Sciences, Godfrey Okoye University, Enugu, Nigeria

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