Forecasting the Nigeria Foreign Exchange, Leveraging on the Arima Model

Abstract

This study seeks to build an appropriate model that will be used to forecast the US Dollar to the Nigerian Naira Exchange Rate. The exchange rate market is known to be unstable; this is due to the constant changes in the economic or market environment of countries. Therefore, forecasting the exchange rate accurately is very important in the economic decisions of countries and the organized private sector. The Autoregressive Integrated Moving Average (ARIMA model) is used as the basis of the time series analysis to forecast the US dollar to Naira Exchange Rate. We also test to check the stationarity condition of the variable using the time plot and Augmented Dickey Fuller. Data used for this study was derived from the Central Bank of Nigeria (CBN) spanning from 2002 to 2022. After model estimation, identification and diagnostic, results show that ARIMA (1, 1, 1) remains a better model to forecast the US dollar to Naira Exchange Rate.