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Evaluation of GARCH model Adequacy in forecasting Non-linear economic time series data

Author(s): M.O. Akintunde | P.M. Kgosi | D.K. Shangodoyin

Journal: Journal of Computations & Modelling
ISSN 1792-7625

Volume: 3;
Issue: 2;
Start page: 1;
Date: 2013;
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To date in literature, GARCH model has been described not suitable for non-linear foreign exchange series and therefore this paper proposes an Augmented GARCH model that could capture both linear and non-linear behavior of data. The properties of this new model is derived and found to have a minimum variance compared with GARCH model. We employ the use of Brock-Dechert-Scheinkman (BDS) test statistic to confirm the suitability of GARCH model on the data; the new methodology proposed is illustrated with foreign exchange rate data from Great Britain (Pound) and Botswana (Pula) against United States of America (Dollar).
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