Modeling and Forecasting the Volatility of the Export Price of Sesame in Ethiopia
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Date
2014-10
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Addis Abeba university
Abstract
Sesame (Sesamum indicum L.) is one of the world's oldest spice and oilseed crops grown mainly
for its seeds that contain approximately 50% oil and 25% protein. Ethiopian oilseeds and pulses
are mostly organically produced, and are known for their flavor and nutritional value. Sesame is
the second-largest export crop in Ethiopia, after coffee, and accounts for over 90% of the value
of oil seeds exports. The aim of this study is to model the export price of sesame as well as its
volatility in Ethiopia using ARIMA and GARCH family models. The data used are monthly
observations of the export price of sesame, food price index, fuel oil price and exchange rate
from January 1998 to June 2013.
Unit root tests of the series under study reveal that all the series are non-stationary at level and
stationary after first difference. ARIMA and GARCH models were employed to analyze the
monthly export price of sesame data. It was found that ARIMA(0,1,1) and ARMA(2,2)-
GARCH(2,1) with normal distributional assumption for the residuals were adequate models for
the data considered in this study. Among the exogenous variable that are considered in this
study, food price index had an impact on the volatility of the export price of sesame in Ethiopia.
Finally, various forecast accuracy statistics indicate that the estimated ARIMA model is good
enough to describe the export price of sesame. Moreover, the out-of-sample forecasts indicate
that the export price of sesame has an increasing trend. The in-sample forecast using the best-fit
GARCH model indicates that the export price volatility of sesame steadily increased at the
beginning of the study period, remained at almost a constant level till 2007 and then exhibited a
downward trend around the end of the study period.
Key words: Sesame, ARIMA, GARCH, Forecasting, Ethiopia
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Keywords
Sesame, Arima, Garch, Forecasting, Ethiopia