Evaluation of Models for Forecasting Daily Foreign Exchange Rates Between Nigerian Naira and US Dollar Amidst Volatility
Author (s)
Maigana Alhaji Bakawu, Ahmed Abdulkadir, Shafiu Usman Maitoro & Abdulrahman Malik
Abstract
In her quest to put the nations’ foreign exchange policy in line with global practice, the Central Bank of Nigeria (CBN) in the mid of 2016 made a paradigm shift by unveiling flexible foreign exchange policy driven purely by market forces. Consequently, forecasting models reported during pegging policy era may be deeming obsolete. This paper proposed a prediction model for future daily selling exchange rate between Nigerian Naira and United States Dollar in the interbank market amidst volatility using daily rates made available by the Central Bank of Nigeria over the periods July, 2016 to October, 2017. We applied the Box-Jenkins methodology to the Naira – US Dollar exchange rate series in order to build an adequate and well specified prediction model. On the first phase of the study, we checked the stationarity of the series and based on Augmented Dickey-Fuller test and correlogram, the series is stationary at level. The findings revealed that the future daily exchange rate of Naira per US Dollar depends on its past rates and associated innovations. This is evident from the fact that turned out parsimonious model for forecasting the parity between the two currencies on the basis of Bayesian Information Criterion. The said model yielded error of forecast (MAPE) within ten percent.
Key words: Autoregressive, Box-Jenkin’s Methodology, Exchange Rates, Moving Average, Naira, United States Dollar.
| Title: | Evaluation of Models for Forecasting Daily Foreign Exchange Rates Between Nigerian Naira and US Dollar Amidst Volatility |
|---|---|
| Author: |
Maigana Alhaji Bakawu, Ahmed Abdulkadir, Shafiu Usman Maitoro & Abdulrahman Malik |
| Journal Name: | International Journal of Science and Business |
| Website: | ijsab.com |
| ISSN: | ISSN 2520-4750 (Online), ISSN 2521-3040 (Print) |
| DOI: | https://doi.org/10.5281/zenodo.3601100 |
| Media: | Online |
| Volume: | 4 |
| Issue: | 1 |
| Acceptance Date: | 05/01/2020 |
| Date of Publication: | 08/01/2020 |
| PDF URL: | https://ijsab.com/wp-content/uploads/448.pdf |
| Free download: | Available |
| Page: | 95-105 |
| First Page: | 95 |
| Last Page: | 105 |
| Paper Type: | Research Paper |
| Current Status: | Published |
Cite This Article:
Maigana Alhaji Bakawu, Ahmed Abdulkadir, Shafiu Usman Maitoro & Abdulrahman Malik (2020). Evaluation of Models for Forecasting Daily Foreign Exchange Rates Between Nigerian Naira and US Dollar Amidst Volatility. International Journal of Science and Business, 4(1), 95-105. doi: 10.5281/zenodo.3601100
Retrieved from https://ijsab.com/wp-content/uploads/448.pdf
About Author (s)
Maigana Alhaji Bakawu, (Corresponding Author), Department of Statistics, Mai Idris Alooma Polytechnic Geidam, Nigeria.
Ahmed Abdulkadir, Department of Mathematical Sciences, Abubakar Tafawa Balewa University Bauchi, Nigeria.
Shafiu Usman Maitoro, Department of Statistics, Abubakar Tatari Ali Polytechnic Bauchi, Nigeria.
Abdulrahman Malik, Department of Statistics, Mai Idris Alooma Polytechnic Geidam, Nigeria.
DOI: https://doi.org/10.5281/zenodo.3601100