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Shocks effects of macroeconomic variables on natural gas consumption in Nigeria: Structural VAR with sign restrictions

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  • Galadima, Mukhtar Danladi
  • Aminu, Abubakar Wambai

Abstract

This paper has examined the transmission of shocks from macroeconomic variables, namely money supply, inflation, exchange rate and real GDP onto natural gas consumption using Structural VAR (SVAR) model with sign restrictions. The results revealed that both in the short run and long run, natural gas consumption responds significantly to the shocks emanating from money supply and real GDP while its response to inflation shock is significant only in the short run but exchange rate shock is not significant. However, money supply has contributed greater proportion of the shocks followed by the real GDP, inflation and exchange rate in the ordering of the variance decomposition. The paper recommends that Nigerian authorities adjust the monetary policy tools towards regulating the money supply and checking the inflation rate to ensure increased demand for natural gas and sustained economic growth. On the response of natural gas consumption to the shock in the exchange rate, since the shock is positive though insignificant, it implies that depreciation of the exchange rate can discourage the demand for foreign exchange, imports and, boost the local production which would reciprocally lead to more natural gas consumption and improved growth in the country.

Suggested Citation

  • Galadima, Mukhtar Danladi & Aminu, Abubakar Wambai, 2019. "Shocks effects of macroeconomic variables on natural gas consumption in Nigeria: Structural VAR with sign restrictions," Energy Policy, Elsevier, vol. 125(C), pages 135-144.
    • Handle: RePEc:eee:enepol:v:125:y:2019:i:c:p:135-144
    DOI: 10.1016/j.enpol.2018.10.021
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