Time Series Analysis of Nigeria Foreign Exchange Reserve
Keywords:External reserve, ARIMA, stationarity, model selection, forecasts
AbstractTime series analysis was carried out on Nigeria External Reserves for the period of 1960 – 2018. An empirical investigation was conducted using time series data on Nigeria External Reserve for a period of 58 years. The techniques of estimation employed in the study include Phillips-Perron unit root test, Dickey-Fuller’s test, the Autocorrelation function and the Partial Autocorrelation function for the model selection. The Box-Jenkins ARIMA methodology was used for forecasting the monthly data collected from 1960 to 2018. Result of the analysis revealed that the series became stationary at first difference. The diagnostic check showed that ARIMA (1, 1, 2) is appropriate or optimal model based on the Loglikelihood (LogLik), Akaike’s Information Criterion (AIC), as well as the small standard error of the AR(1), MA(1) and MA(2) parameters. The performance of “forecast.Arima()” function in R gives the best model for Nigeria external reserve. Testing for other ARIMA models is necessary in order to establish the best. The downward movement in the forecasts of Nigeria external reserve would be helpful for policy makers in Nigeria.
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