Abstract
This research fit a univariate time series ARIMA model to the Monthly data of exchange rate between Nigerian Naira and US Dollar from January 1980 to December 2015. The Box-Jenkins Autoregressive Integrated Moving Average (ARIMA) model was estimated and the best fitted ARIMA model is used to obtain the post-sample forecasts for three years (January 2016 to December 2018). The data was analyzed with the aid of R statistical package and the best model was selected using Auto. ARIMA. The fitted model is ARIMA (0,1,1) with Akaike Information Criteria (AIC) of 2313.19, Normalized Bayesian Information Criteria (BIC) of 2325.39. This model was further validated by Ljung-Box test with no significant Autocorrelation between the residuals at different lag times and subsequently by white noise of residuals from the diagnostic check performed which clearly portray randomness of the standard error of the residuals, no significant spike in the residual plots of ACF and PACF. The forecasts value indicates clearly that Naira will continue to depreciate against the US Dollar between the periodsunderstudy.
Highlights
Exchange rates are quoted as foreign currency per unit of domestic currency or domestic currency per unit of foreign currency
[5] determined the integer parameters (p,q) that govern the underlying process yt by examining the autocorrelations function (ACF) and partial autocorrelations (PACF) of the stationary series. [11] explained that it is better to entertain more than one structure for further analysis because the evidence examined at this stage does not point clearly in the direction of a single model [11] stated that this decision can be justified on the ground that the objective of the identification phase is not to rigidly select a single correct model but to narrow down the choice of possible models that will be subjected to further examination
From 2005 to 2010 the Naira appreciated against the US Dollar, and started depreciating from 2010 till 2015
Summary
Exchange rates are quoted as foreign currency per unit of domestic currency or domestic currency per unit of foreign currency. Exchange rate can be seen as the price of one country’s currency in relation to another country. It is the required amount of units of currency that can buy another amount of units of currency. It is the price in which one currency is exchange for another. According to [7], Exchange rate policy has been identified as one of the endogenous factors that can affect the economic performance of a nation
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