Modeling and Forecasting Exchange Rate Volatility in West Africa using GARCH models

Didier Dukundane

Journal of Statistical and Econometric Methods, 2023, vol. 12, issue 4, 2

Abstract: This study empirically investigates the nature of exchange rate volatility in the context of West Africa. The study uses daily data on the exchange rates of the West African CFA franc (XOF) in terms of US Dollar. The empirical analysis has been carried out for the period from 13-11-2009 to 18-09-2023, for a total of 5058 observations. We excluded the last 25% of observations in order to evaluate the forecasting accuracy. The exchange rate volatility of the West African CFA franc against the US Dollar is estimated using GARCH models based on normal and student’s t-distribution of innovations. Results show that the ARMA(3,1)-GARCH(1,2) model with student-t distribution is well adequate model to capture the mean and the volatility process of USD-CFA exchange rate log returns. Â

Keywords: Exchange rates; normal and student-t distribution; ARMA-GARCH. (search for similar items in EconPapers)
Date: 2023
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