Time Series Analysis of Interest Rate in Nigeria: A Comparison of Arima and State Space Models
This paper set out to analyse and forecast the monthly commercial banks interest rate data on time deposits in Nigeria for a period of 2005 2015. The main objective of this study is to propose an appropriate time series forecasting model for the interest rate data. The data which was obtained from the Central Bank of Nigeria (CBN) was analysed using Autoregressive Integrated Moving Average (ARIMA) procedure, Intervention Autoregressive Integrated Moving Average (Intervention ARIMA) procedure and State Space Modelling approach. As an illustration, the three approaches were compared for modelling and forecasting the interest rate data. Evidence showed Intervention ARIMA model to be more adequate than ARIMA (without intervention) model and State Space Model to be also more adequate than Intervention ARIMA model for the data set (interest rate in Nigeria) under consideration.