Self-exciting Threshold Autoregressive Model with Application to Crude Oil Production in Nigeria

Abstract

In the last two years the price of oil and its fluctuations have reached levels never recorded in the history of international oil markets. The determinants of past, current, and future levels of the price of oil and its fluctuations have been the subject of analysis by academics and energy experts, given the relevance of crude oil in the worldwide economy. The paper, therefore, model and forecast crude oil production (2002-2022) sourced from Central Bank of Nigeria website. The successive least squares estimation and model diagnostics are applied. The results affirmed that the self-exciting threshold autoregressive (SETAR(2,2,1)) model outperformed autoregressive integrated moving average (ARIMA(3,1,3)) model for crude oil production fluctuations based on our diagnostics (AIC, SC, SSR and log-likelihood ratio). The results obtained will greatly assist the government and policy makers in planning for economic development since the long-run success of any country is closely related to how well management is able to foresee the future and develop appropriate strategies.