A SIGN-RESTRICTED VAR APPROACH TO ANALYZING THE SHOCKS EFFECTS OF THE COVID-19 ON THE NIGERIA’S SELECTED MACROECONOMIC VARIABLES

Abstract

It is utterly evident that the Corona Virus (COVID-19) global pandemic had
wrecked a great havoc on the global economy. Nigeria is not an isolation
looking at the globally ravaging and devastating effect of the pandemic on the
global economy. This paper explores within the framework of a sign restricted
structural VAR, propagation of perturbations among the Nigeria’s
macroeconomic indicators namely, GDP, inflation and the COVID-19 using the
number of cases recorded in the country as a proxy. The results of the impulse
response functions revealed evidence of transmission of shocks from the
COVID-19 variable to GDP and inflation. The response of GDP to a one unit
standard deviation shock to the COVID-19 has been found to be negative during
the period horizon, while the response of inflation to a unit shock to the COVID-
19 was positive signifying the price-trigger effect of the pandemic on goods and
services. The COVID-19 impulse response function was positive from the
beginning of the period horizon but thereafter the impulse response became
negative which suggests that the pandemic has had a negative effect on GDP
and a positive effect on inflation in Nigeria. The results point to the need for
taking stiffer macroeconomic measures by the authorities of the country in
assuaging the effects of the pandemic on prices as well as output, this would
help in propelling and sustaining growth.