INTERVENTION MODELLING OF THE EFFECT OF EXCHANGE RATE ON ECONOMIC RECESSION IN NIGERIA

George, Lauretta Emugha; Prof. E. H. Etuk

George, Lauretta Emugha Department of Mathematics, Rivers State University, Port Harcourt, Rivers State, Nigeria
Prof. E. H. Etuk Department of Mathematics, Rivers State University, Port Harcourt, Rivers State, Nigeria

Keywords: Intervention modelling, exchange rate, economic recession

Abstract

The paper sought to investigate the effect of the bureau de change (United State Dollar, USD) and Nigeria naira (NGN) exchange rate on economic recession using intervention analysis from June 2017 to March 2021. The data was taken from the website of the central bank of Nigeria (cbn.org). The study adopted augmented dickey fuller test for checking the stationarity. The pre-intervention data spectacles a negative slope and it was non-stationary but after the first difference occurred it became stationary.

The point of intervention is spotted at T=12 which was March 2020 from quarterly point of view. The pre-intervention plot indicates that there was an initial negative trend and later an upshot to positive trend which did not favour the Naira. The ACF and the PACF of the differenced exchange rate data indicated a white noise pattern which that the Correlogram of the 2020 pre intervention series of the difference of exchange rate is the autocorrelation structure of white noise (United State Dollar (USD) and Nigeria Naira (NGN) are independent and identically distributed within the zero mean but the same variance where each value has a zero correlation with all other values in the Differenced data). The correlogram also shows that an AR (1) model is be fit. The difference between the forecast and the post-intervention series was modeled after the intervention transfer function and was seen to be statistically significant which indicates model adequacy.

The comparison of the intervention forecasts and the post intervention data showed a close agreement between the curves is a testimony to the correctness on the intervention model thereby making the model fit to be used to help strengthen the Nigerian Naira. Hence, there is need for the government to apply appropriate monetary policy to stabilized the exchange rate thereby bring the economic back to its feet.

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