Spillover Effects of Global Economic Uncertainty Shocks in Nigeria

Abstract

This chapter examines the spillover effects of global economic uncertainty shocks in Nigeria from 1981q1 to 2019q4. Uncertainty is generated from the conditional variances of real GDP, inflation and private consumption using the EGARCH technique, while the vector-autoregressive regression (VAR) model was employed to analyse the objective. The findings show that domestic inflation uncertainty due to global economic risks brings about an increase in industrial production. However private consumption uncertainty reduces industrial production. Also, international real output uncertainty reduces domestic real output. Private consumption uncertainty and inflation uncertainty also reduce domestic real output. That the price level of the domestic economy, also, responds negatively to real output uncertainty and private consumption uncertainty from abroad (US, China and Europe). The response of private consumption to real output varies depending on the country. For the domestic economy, if the intention is to increase industrial output, policymakers should not worry much about inflation uncertainty. Instead, private consumption should be closely followed up and managed appropriately, especially at a time of global risks. At the international level, countries that are closely connected to the domestic economy in terms of trade and otherwise should be closely monitored for real output uncertainty, private consumption uncertainty and inflation uncertainty, mostly in periods of global risks such as COVID-19.