Modelling Naira - Rupee Exchange Rate: An ARIMA Framework

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Published: 2022-08-23

Page: 416-425


Amaefula Chibuzo Gabriel *

Department of Mathematics and Statistics, Federal University Otuoke, Bayelsa State, Nigeria.

*Author to whom correspondence should be addressed.


Abstract

This paper models Naira/1 Rupee exchange rate (NREXR) using ARIMA framework for forecasting NREXR now that bi-lateral relation between Nigeria and India have deepened over the years in areas of crude oil demand, medical facilities, and public and private business relations. The monthly bi-lateral NREXR data used spanned from 2008 to 2020. The auxiliary autoregressive order three (AAR (3)) order of integration test (OIT) adopted showed that NREXR is integrated order one (I(1)) in its original level and integrated order zero I(0) at 1st difference. Four possible ARIMA (p, 1, q) models were identified and compared using an output-based criterion known as sum of square deviation forecast criterion (SSDFC) conditioned on absence of serial correlation on the model residuals. The result showed that the ARIMA (1, 1, 2) model is the best performing model with the smallest SSDFC value. However, the ARIMA (1, 1, 2) can be used in predicting NREXR in terms of investment risk averse or incline.

Keywords: NREXR, ARIMA, order of integration test, SSDFC


How to Cite

Gabriel, A. C. (2022). Modelling Naira - Rupee Exchange Rate: An ARIMA Framework. Asian Journal of Economics, Finance and Management, 4(1), 416–425. Retrieved from https://globalpresshub.com/index.php/AJEFM/article/view/1647

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