Modeling and Forecasting Nigerian Naira/US Dollar and The Gambian Dalasi/US Dollar Exchange Rates: A Comparative Study

Abstract:

This paper compares the predictive performance of time series forecast methods on the Nigerian Naira/US Dollar (NGN/USD) and The Gambian Dalasi/US Dollar (GMD/USD) exchange rates. The forecast methods—Autoregressive Integrated Moving Average (ARIMA), Simple Exponential Smoothing (SES), Holt’s Linear Trend, and Damped Holt—were applied to the annual Nigerian Naira and Gambian Dalasi against the US Dollar for the period 1960–2020. The best model for forecasting exchange rates in both countries was selected based on Root Mean Squared Error (RMSE), Mean Absolute Error (MAE), Mean Absolute Percentage Error (MAPE), and Mean Absolute Scaled Error (MASE). The findings in this study revealed that both Naira/US Dollar and Gambian Dalasi/US Dollar exchange rate distributions are positively skewed and ARIMA (0,2,2) model was selected as the most appropriate model for forecasting both exchange rates. The results also showed that by 2030, the Nigerian Naira/US Dollar exchange rate will rise by 37.06 percent while the Gambian Dalasi/US Dollar will rise by 23.18 percent. This study suggests that both countries should adopt tighter fiscal, monetary, and supply-side policies.