Examining the response of inflation to the boom-bust cycle of oil price: evidence from Nigeria

Nnadozie, Obianuju, Emediegwu, Lotanna ORCID: https://orcid.org/0000-0001-7844-0397 and Raifu, Isiaka (2022) Examining the response of inflation to the boom-bust cycle of oil price: evidence from Nigeria. DBN Journal of Economics and Sustainable Growth, 5 (1). ISSN 1115-6104

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Abstract

This paper investigates the (a)symmetric response of inflation in Nigeria to the boom-and-bust cycle of oil price in the framework of the linear autoregressive distributed lag (ARDL) and non-linear ARDL models respectively using monthly data from 1995M1 to 2019M12. Both models are estimated taking into consideration the possibility of structural breaks and trends in the data series. For the ARDL model, we find no evidence that changes in oil prices significantly affect inflation. However, the results of the NARDL model suggest that positive changes in oil prices have positive and significant effects on inflation while negative changes in oil prices yield insignificant negative effects in almost all the specifications. In light of our empirical findings and recognizing the potential deleterious effect of inflation on the welfare of the citizens of Nigeria given that it erodes their purchasing power, we, therefore, suggest that government should put in place safety net measures that can help cushion the adverse effects of inflation emanating from oil price fluctuations.