Modeling and Forecasting the Volatility of the Export Price of Sesame in Ethiopia

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Addis Abeba university


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



Sesame, Arima, Garch, Forecasting, Ethiopia