A DAILY JAPANESE YEN – NIGERIAN NAIRA EXCHANGE RATES SIMULATION MODEL

  Ette Harrison Etuk & Pius Sibeate

Department of Mathematics, Rivers State University of Science and Technology, Port Harcourt, Nigeria

Rivers State Ministry of Education, Port Harcourt, Nigeria

Email: ettetuk@yahoo.com

ABSTRACT

Daily Japanese Yen / Nigerian Naira exchange rates are modelled as a time series. A time plot of a realization of the series, which begins from 15^th October 2015 to 8^th April 2016, shows that relatively the Nigerian currency is depreciating. The exchange rates are adjudged to be non-stationary by the Augmented Dickey Fuller Test. A seven-point differencing of the series is not enough to render the series stationary according to the same unit-root test.  Differencing of the seasonally differenced series finally renders the series stationary. The autocorrelation structure of this stationary series makes some seasonal autoregressive integrated moving average models suggestive. Such models include three  with orders (0,1,1)x(0,1,1)₇, (0,1,0)x(0,1,1)₇ and (1,1,1)x(1,1,1)₇. The model selection criteria AIC, Schwarz criterion and Hannan-Quinn criterion unanimously adjudge the second model as the most adequate. Seven later values of the series from 9^th to 15^th April 2016 are used to compare with the forecasts. It is observed that this out-of-sample comparison shows the forecasts to be very close to the observations; in fact, they are not significantly different from them. Therefore forecasting and simulation of the series may be done using the proposed model.