Modeling Exchange Rate Heteroskedasticity in Nigeria (1986-2008)

Abstract

The exchange rate of naira vis-à-vis the U.S dollar has attained varying rates all through different time horizons exhibiting hetroskedasticity pattern in trend since the transition from fixed exchange rate regime to floating exchange rate regime in Nigeria. On this basis, the study modelled the consistency and persistency of exchange rate hetroskedasticity of Nigerian currency (naira) vis-a-vis the United State dollar using monthly time series data from 1986 to 2008. The ARCH and GARCH models were used to examine the degree of volatility using the first difference, standard deviation and coefficient of deviation measures of volatility. The result indicated presence of overshooting volatility shocks. All the incorporated measures of volatility indicated presence and persistency of heteroskedasticity.

Keywords: Exchange rate, Volatility, Heteroskedasticity, Consistency, GARCH, Nigeria, Africa

Botswana Journal of Economics vol 9 (13) 2012