Modeling US Dollar and Nigerian Naira Exchange Rates During COVID-19 Pandemic Period: Identification of a High-performance Model for New Applications

Abstract

This study modeled the US Dollar and Nigerian Naira exchange rates during COVID-19 pandemic period using a classical statistical method – Autoregressive Integrated Moving Average (ARIMA) – and two machine learning methods – Artificial Neural Network (ANN) and Random Forest (RF). The data were divided into two sets namely: the training set and the test set. The training set was used to obtain the parameters of the model, and the performance of the estimated model was validated on the test set that served as new data. Though the ARIMA and random forest performed slightly better than the neural network in the training set, their performance in the test set was poor. The neural network with 5 nodes in the input layer, 5 nodes in the hidden layer and 1 node in the output layer (ANN (5,5,1)) performed better on the new data set (test set) and is chosen as the best model to forecast for future USD to NGN exchange rate. The information from the high-performance model (ANN (5, 5, 1)) for modeling the USD to NGN exchange rate will assist econometric trading of the currencies and offer both speculative and precautionary assistance to individuals, households, firms and nations who use the currencies locally and for international trade.