Author(s): Busayo Aderounmu
Nigeria is susceptible to external shocks as a result of its integration with the world market. The purpose of this study thus is to examine the extent to these external shocks influences consumption and investment in risky assets in pre and post financial crisis period using monthly data from 1999 to 2014. This study using vector autoregression (VAR) found that the integration of the Nigerian stock market into the world market makes the market vulnerable to up and downs. External shocks (measured with the oil price and interest rate) harmed the growth of consumption and investment in the pre-crises period. External shocks had a positive as well as a negative effect on consumption and investment respectively in post crises. Thus, Nigeria felt the full brunt of the fall in the oil price, which reduced the value of the commodity and consequently consumption and investment thus, marginalizing the real sector. This implies that the effect of the shock in oil price is transmitted to both consumption and investment. Also, shocks in interest rate did not directly affect consumption but through its effect on income. Therefore, policies meant to regulate the domestic economy to mitigate the interference of external shocks should be put in place.