Oil Price and Exchange Rate Volatility: Implication on Trade Transactions in Nigeria

This study investigates the relationship between oil price, exchange rate volatility, and trade transactions in Nigeria for the period covering from 2008 to 2024. The study employed monthly frequency data from the Central Bank of Nigeria (CBN) Statistical Bulletin, National Bureau of Statistics (NBS), and the World Bank databases to investigate the oil price-exchange rate volatility-trade nexus over the period of January 2008 to October 2024. We constructed and estimated a GARCH (1,1) model to derive the exchange rate volatility series. The unit root test and bounds test were employed to determine the stationarity properties of the series and the long-haul relationship among the variables, respectively. The Non-Linear autoregressive distributed lag (NLARDL) method was employed to analyse the nexus between the variables of interest. The NLARDL method’s revealed that exchange rate volatility had insignificant and a negative effect on trade. The research determined that the price of oil has a beneficial impact on trade, while a higher inflation rate ultimately impedes trade performance. The study suggests that the monetary authorities should introduce a transparent exchange rate system and platform to stabilise the naira in order to impact positively to trade. This will foster confidence and increase the inflow of the greenback into the country in the form of foreign direct investment, foreign portfolio investment, and other capital investment.