An Assessment of the Impact of Domestic and External Shocks on Macroeconomic Fluctuation in Nigeria

Abstract

This paper aim to assess the impact of domestic and external shocks on macroeconomic fluctuation in Nigeria, covering 1985-2016, External and domestic macroeconomics were used as variables, facto-augmented VAR is utilized as methodology. Finding of the study showed that, The terms of trade shock on domestic variables showed that consumption, inflation rate, investment and broad money supply are statistically significant throughout the quarter and the real gross domestic product, narrow money supply, reserve money, labor force and unemployment are not statistically significant throughout the period, The study also examined the effect of monetary policy shock on exogenous variables and the result shows that monetary policy shock really have no significant effect on most essential external variables. The study therefore advocates that Nigeria should take practical steps to ameliorate the adverse effect of external shocks by carefully selecting and engaging policy thrust that suit the economic problems and environments. Furthermore, there is need for a major policy design to encourage value addition of the nation’s export commodities