OIL PRICE VOLATILITY AND EXCHANGE RATES FLUCTUATION EVIDENCE FROM NIGERIA

ABSTRACT This study examines the impact of oil price volatility on exchange rate fluctuations in Nigeria over the period 1982–2024, with particular focus on the long-run and short-run relationships between global crude oil price dynamics and the value of the naira. Annual time series data on crude oil prices, official exchange rate, and other relevant macroeconomic indicators were obtained from the Central Bank of Nigeria Statistical Bulletin, World Bank Development Indicators, and International Monetary Fund databases. The Autoregressive Distributed Lag (ARDL) framework was employed after establishing the stationarity properties of the variables using Augmented Dickey-Fuller unit root tests. The ARDL bounds test confirmed the existence of cointegration, indicating a long-run equilibrium relationship between oil prices and exchange rate movements. Findings from the long-run estimates revealed that oil price volatility exerted a significant effect on the exchange rate, with periods of rising oil prices linked to relative exchange rate stability, while declining oil prices were associated with persistent depreciation of the naira. In the short run, however, the impact of oil price changes on exchange rate fluctuations was inconsistent, reflecting structural imbalances, speculative activities, and policy distortions within the Nigerian economy. The error correction mechanism was significant and revealed a moderate speed of adjustment towards long-run equilibrium. The study concludes that the volatility of oil prices remains a critical determinant of exchange rate instability in Nigeria, and the overdependence on crude oil revenues has intensified external vulnerabilities. It is therefore recommended that government diversify foreign exchange earnings, strengthen non-oil exports, and adopt sound monetary and fiscal policies to mitigate the adverse effects of oil price shocks on exchange rate stability.