Exchange rate volatility and exchange rate uncertainty in Nigeria: a financial econometric analysis (1970- 2012)

Kelechi Nnamdi and Ebele Ifionu

MPRA Paper from University Library of Munich, Germany

Abstract: This research paper examines exchange rate volatility over time (1970-2012) using the Generalized Autoregressive Conditional Heteroscedasticity (AR GARCH) model of the Maximum Likelihood techniques. Our AR GARCH result showed that lagged (last year) exchange rate is significantly responsible for the dynamics of Naira/ Dollar exchange rate in Nigeria. Most glaring is that our ARCH and GARCH parameters indicate that exchange rate volatility shocks are rather persistent in Nigeria. We also find that exchange rate uncertainty has a direct relationship with current exchange rate in Nigeria. Further, the Granger causality test conducted shows that the direction of causality is more powerful and significant from exchange rate uncertainty to actual exchange rate in Nigeria. Thus the paper suggests a proper management of exchange rate, to forestall costly distortions in the Nigerian economy.

Keywords: GARCH Models; Financial Econometrics; Foreign Exchange rate; Monetary Policy (search for similar items in EconPapers)
JEL-codes: C58 F31 (search for similar items in EconPapers)
Date: 2013, Revised 2013
New Economics Papers: this item is included in nep-afr and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:48316

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