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MACROECONOMIC TRANSMISSION MECHANISMS OF CRUDE OIL PRICE SHOCKS IN NIGERIA: A SEEMINGLY UNRELATED REGRESSION ANALYSIS

IJEBSM | Published: November 9, 2026 | Vol. 2 Issue 4 | ISSN: 3139-0919
OSEKWEYI J. ODONYE (PhD)1,
El-Yaqub, Ahmed Baba2✉,
BAMAIYI GARBA3
1 Nasarawa State University, Keffi, Nasarawa State, Nigeria
2 Department of Economics, University of Abuja
3 National Institute for Policy and Strategic Studies, Kuru Plateau State, Nigeria
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Abstract

This study investigates the macroeconomic transmission mechanisms of crude oil price (COP) shocks in Nigeria from 1990 to 2025. It maps how these shocks propagate through four structural channels: growth, price, foreign exchange, and investment. To address the limitations of separate single-equation models, we use Zellner’s Seemingly Unrelated Regression (SUR) framework. This model captures the contemporaneous correlation across five dependent variables: Real Gross Domestic Product (RGDP), Inflation (INF), Exchange Rate (EXR), Interest Rate (INT), and Unemployment (UNE). System diagnostics, supported by the Breusch-Pagan LM test, confirm the efficiency gains of using the SUR approach over Ordinary Least Squares (OLS). The empirical results show that a 10% surge in global crude prices expands real output (RGDP) by 1.24%, confirming a positive growth channel. However, this windfall also triggers cost-push inflationary pressures, with a significant positive impact on headline inflation (INF). The foreign exchange channel shows that positive oil shocks strengthen the Naira (-0.485), whereas price drops lead to currency depreciation. In the investment and labor channels, positive oil shocks reduce policy interest rates (-1.850) and lower unemployment (-2.480). Conversely, negative shocks lead to monetary tightening and higher unemployment. These findings show that while oil windfalls support short-term growth, they also feed structural inflation and cyclical unemployment. We recommend setting up structural counter-cyclical fiscal buffers, fully deregulating domestic refining capacity, and targeting monetary policy to reduce oil-driven inflation.
Keywords: Crude Oil Price Shocks; Seemingly Unrelated Regression (SUR); Transmission Channels; Dutch Disease; Macroeconomy; Nigeria.

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🔓 Open Access | Published by IR Publishing Group. This article is licensed under a Creative Commons Attribution 4.0 International License (CC BY 4.0).

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