Predicting the Dynamics of Nigeria's External Reserves Using the Buys-Ballot Method

Abstract

This study presents a model to predict the dynamics of External Reserves of Nigeria. The choice of suitable time series model, trend estimation and seasonal effect assessment was done using Buy-Ballot method. The result of the analysis showed that an additive model is most suitable for modelling External Reserves of Nigeria between the times considered in the study. The four different trend curves considered for this study which include linear, quadratic, exponential and S-curve were subjected to three test of accuracy such as Mean Absolute Percentage Error (MAPE), Mean Absolute Deviation (MAD) and Mean Squared Deviation (MSD) to determine the one with the least error estimate and it was found that the quadratic trend curve had the least error estimates when compared with other trend curves, hence the quadratic trend curve was adopted and fitted to the External Reserves of Nigeria. There was a downward trend as revealed by trend-cycle component which shows that between the periods under study, the External Reserves of Nigeria has been on the decline. The Dot also revealed the influence of seasonal effect on External Reserve of Nigeria. The model equation obtained was used to predict the External Reserve of Nigeria for a period of eight years. The study recommended that the Nigerian government should concentrates more on growing the External Reserves so as to build global community confidence and trust in the nation's fiscal policies and creditworthiness.