Modelling Volatility Persistence and Asymmetry of Naira-Yuan Exchange Rate
DOI:
https://doi.org/10.62054/ijdm/0202.19Keywords:
Selling Rate; Interbank Exchange Rate Market; Exchange Rate; Volatility Modelling.Abstract
This study investigates the impact of the Naira-Yuan Swap agreement on the stability, volatility, and potential symmetry and asymmetry of the Naira-Yuan/Renminbi exchange rate in the interbank market (Selling Rate) using daily data from January 2015 to November 2024. We employ the Augmented Dickey-Fuller (ADF) test and various asymmetric conditional volatility models, including Autoregressive Conditional Heteroscedasticity (ARCH), Generalized Autoregressive Conditional Heteroscedasticity (GARCH), GJR-GARCH, APARCH, and PARCH, to estimate the instability and variations in exchange rates across the market. Our findings indicate that persistence is generally explosive in the interbank rates under symmetric models. The symmetric GARCH model effectively captures the explosive nature of the series compared to the ARCH model, while the asymmetric PARCH (1,1) outperforms both the APARCH (1,1) and GJR-GARCH models. The GARCH model shows a coefficient of 1.0736334, indicating non-stationarity and explosiveness in the series regarding exchange rate volatility, whereas the asymmetric PARCH model, with a coefficient of -0.0451384, demonstrates superior performance in reflecting dynamics in leverage behavior. These results underscore the importance for monetary authorities to consider market developments and reactions to news, particularly in the Interbank Exchange Market, when formulating effective exchange rate policies for Nigeria. Understanding these dynamics is crucial for enhancing policy formulation and guiding investor decisions in the context of exchange rate volatility.
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