A transfer function modelling of Nigerian current account (Net) and exchange rate

Abstract

This study proposes a transfer function noise model for the Nigerian current account (net) using the US dollar exchange rate as the input variable. The sixty annually collected time series data used covering the period 1960-2019 were obtained from the National Bureau of Statistics. Both series were non-stationary and were transformed by differencing. The transformed series were confirmed stationary using an appropriate test, the augmented Dickey-Fuller test, ADF. The cross-correlation function method was used for the estimation of the transfer model while the Box-Jenkins autoregressive integrated moving average method was used to separately model the autocorrelated noise term. The estimated transfer function with a noise model was subjected to a diagnostic check. The calculated Q-statistic offered evidence for the adequacy of the estimated model. For parsimony, estimates for the model parameters were recursively obtained after factorization.