16 The Dynamics of External Reserve in Nigeria: Do Oil Price Shocks Matter? Musibau Adetunji Babatunde Abstract The study analysed oil price shocks and external reserve in Nigeria between 1997 and 2014 using monthly data. Time series and structural analysis were employed. The analysis revealed the stationarity of the variables at the first difference and established theexistenceof long-run relationship among thevariables. Thefindings of cointegration regression revealed theimportanceof oil priceshocksfor external reserve in the Nigerian economy. For example, a 1 per cent increase in oil prices leadsto about 0.95 per cent change in external reservesin Nigeria. Thegeneralized impulseresponsefunction showed that positiveoil priceshocks tend to improve the external reserves but negative oil price shocks diminish the external reserves. The variance decomposition error also revealed that oil priceshocks havea significant futureimpact on reservesin Nigeria.However, theasymmetriceffect of positiveand negativeoil priceshocks on theexternal reserves isnot supported by theWald test. JEL Classification: F32, F44, C22 16.1 Introduction The build-up of oil reserves in Africa and t he emerging economies has accelerated over thelast decadewith thebulk of the increaseoccurring in oil-exporting countries. 268