alexa A Transfer Function-Autoregressive Noise Model of Naira Exchange Rates for Us Dollar and Swiss Franc

Research & Reviews: Journal of Statistics and Mathematical Sciences
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Research Article

A Transfer Function-Autoregressive Noise Model of Naira Exchange Rates for Us Dollar and Swiss Franc

Iwok IA*

Department of Mathematics/Statistics, University of Port-Harcourt, P.M.B.5323, Port-Harcourt, Rivers State, Nigeria

*Corresponding Author:
Iwok IA
Department of Mathematics/ Statistics, University of Port-Harcourt, P.M.B.5323, Port-Harcourt, Rivers State, Nigeria
Tel: +234 84817941
E-mail: [email protected]

Received: 28/11/2015 Accepted: 27/01/2016 Published: 31/01/2016

 

Abstract

This work aims at modelling the Naira exchange rates for US Dollars Xt and Swiss Franc Yt using a transfer function (TF) technique. Data for the two currencies were obtained from the Central Bank of Nigeria (for a period of 53 years). After obtaining stationarity of the two series using appropriate transformation, the input series xt was pre-whitened to remove the spurious correlation effect. The output series yt was also pre-whitened and the cross correlation between the pre-whitened input (αt) and output (βt) was examined. From the behavior of the cross correlation, rational polynomial representation image of the dynamic transfer function was obtained. The estimated noiseimage was found to be auto correlated. Thus, the noise was modelled separately using Box and Jenkins autoregressive (AR) method. This provided the missing component of the TF model which was used to fit the overall model. The resulted model underwent a diagnostic check and was found to be appropriate. Hence forecast was generated.

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