Pages: (15-25 )
Abstract
This study applied the (GARCH 1,1) and Threshold GARCH model to analyze the impact of oil price, external reserves and inflation rate on exchange rate volatility in Nigeria. Monthly data covering the period 1990 to 2019 were gathered from the Central Bank of Nigeria and the World Bank website. The study found evidence of volatility clustering and that volatility is persistent. Increased Oil price reduced exchange rate volatility and depletes the external reserve with implications on exchange rate. An increase in exchange rate and inflation rate reduces exchange rate volatility while external reserve and inflation rate reduced exchange rate volatility. There is evidence of significant laverage effect. Good New adds more exchange rate volatility than bad news. There is need for diversification away from to reduce the exposure of the economy from oil price and exchange rate volatility. Macroeconomic policies carefully issued towards reducing stabilization and reducing exchange rate volatility in Nigeria.
Keywords: Exchange rate, Volatility, GARCH, leverage effect, Diversification,