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Analysis of How Global Commodity Shocks Affect Nigeria’s Economic Stability Based on Impulse Response Function

Authors:
V. N. Chukwukelo

Addresses:
Department of Mathematics and Computer Science, Rivers State University, Port Harcourt, Rivers, Nigeria.

Abstract:

This study employs the impulse response function to investigate the impact of global commodity shocks on Nigeria’s economic stability. Specifically, determine how commodity prices affect copper, maize, and oil – along with the Common Commodity Price Factor (CCPF) and global factors (GF). Monthly time series data from April 1971 to July 2024 were obtained from the Central Bank of Nigeria (www.cbn.org.ng). Analysis of impulse responses reveals that CCPF exhibits a strong reaction to its own shocks, influencing how copper and global factors impact general commodity trends. Sharp reactions in copper prices occur due to internal shocks and worldwide trends, while maize and oil prices react significantly but temporarily to both global and specific commodity shocks. Additionally, global factors are heavily shaped by industrial commodities, especially copper, which underscores their importance in reflecting global economic expectations. These results highlight the interconnectedness and persistence within commodity markets, indicating Nigeria's exposure to external disturbances. Model evaluations indicate stability, non-normal error patterns, and the effectiveness of Bayesian estimation when compared to traditional VAR models. These outcomes underscore the need for fiscal safety nets, diversification efforts, and early warning indicators—especially regarding copper and oil prices—for the effective development of macroeconomic policy in Nigeria.

Keywords: Commodity Prices; Impulse Response Function; Common Commodity Price Factor (CCPF); Global Factors; Economic Stability; Global Commodity Shocks; Commodity Trends.

Received on: 12/10/2024, Revised on: 01/01/2025, Accepted on: 08/04/2025, Published on: 09/11/2025

DOI: 10.69888/FTSML.2025.000451

FMDB Transactions on Sustainable Management Letters, 2025 Vol. 3 No. 4, Pages: 126-138

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