Modelling and forecasting exchange rate volatility in Nigeria: does one model fit all?

Abstract

This study analyses the extent of volatility in exchange rate in Nigeria covering the sustainable democratic transitions between 1999 and 2011 using daily returns. The main innovation of this paper is that it evaluates the volatility under each democratic regime of four years namely 05/29/ 1999 – 05/28/2003; 05/29/2003 – 05/28/2007; and 05/29/2007 –05/28/2011. The empirical evidence indicates that the behaviour of exchange rate tends to change over short periods of time with inconsistent leverage effects and persistence of shocks. Thus, applying a one-model-fits-all approach for exchange rate volatility in Nigeria will yield misleading and invalid policy prescriptions.