Author(s): Nanu Ola Michael and Zubair Mohammed Anono

Abstract: This study investigates the volatility of the US dollar-Nigeria naira exchange rate using the Generalised Autoregressive Conditional Heteroskedasticity (GARCH) model for in-depth research and forecasting. The secondary data for this study was obtained from the Central Bank of Nigeria and covers the years January 2000 to December 2023. According to descriptive statistics, there are significant fluctuations in the mean exchange rate (231.0) and standard deviation (157.4). The fluctuation of the naira is evident from the least recorded exchange rate of 113.70 and the highest rate of 1233.00. The exchange rate series is shown to be non-stationary at both the level and the first difference, necessitating the application of the GARCH model to account for autoregressive conditional heteroskedasticity (ARCH) effects. The series was shown to be non-stationary using the Augmented Dickey-Fuller test, with a p-value greater than 0.05. The model selection technique indicates that, when compared to the other models tested, the GARCH model has the lowest Akaike Information Criterion (AIC) value of 9.815702, making it the most competitive model for this dataset. The findings show that external economic variables such as interest rates and inflation have a significant influence on exchange rate volatility, with implications for risk management and economic policy development. This study concludes with suggestions for adopting measures to stabilise the naira, regularly monitoring key economic indicators, and employing GARCH models to forecast exchange rates. This research extends our understanding of exchange rate dynamics and provides critical information to investors and policymakers navigating the complexities of Nigerian currency volatility.

Pages: 276-286 | Views: 133 | Downloads: 1

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