Modeling variations in the cedi/dollar exchange rate in Ghana: an autoregressive conditional heteroscedastic (ARCH) models
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Springer Plus
Abstract
This research article aimed at modeling the variations in the dollar/cedi exchange rate.
It examines the applicability of a range of ARCH/GARCH specifications for modeling
volatility of the series. The variants considered include the ARMA, GARCH, IGARCH,
EGARCH and M-GARCH specifications. The results show that the series was non station ary which resulted from the presence of a unit root in it. The ARMA (1, 1) was found
to be the most suitable model for the conditional mean. From the Box–Ljung test
statistics x-squared of 1476.338 with p value 0.00217 for squared returns and 16.918
with 0.0153 p values for squared residuals, the null hypothesis of no ARCH effect was
rejected at 5% significance level indicating the presence of an ARCH effect in the series.
ARMA (1, 1) + GARCH (1, 1) which has all parameters significant was found to be the
most suitable model for the conditional mean with conditional variance, thus showing
adequacy in describing the conditional mean with variance of the return series at 5%
significant level. A 24 months forecast for the mean actual exchange rates and mean
returns from January, 2013 to December, 2014 made also showed that the fitted model
is appropriate for the data and a depreciating trend of the cedi against the dollar for
forecasted period respectively.
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Research Article