Forecasting of Petroleum Oil Import Prices by Garch Models: The Case of Ethiopia
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Date
2012-11
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Addis Abeba university
Abstract
The price of oil affects everyone, everyday. Petroleum oil (oil) is an important energy
commodity to mankind. Several causes have made petroleum oil prices to be volatile.
The fluctuation of petroleum oil import prices of Ethiopia has affected many related
sectors, stock market indices and the country‟s economy. The main objectives of this
study were to estimate and forecast petroleum oil import prices in Ethiopia. The data
for this study were monthly petroleum oil import prices data obtained from the
National Bank of Ethiopia for the period from July 1999 to June 2011. The Generalized
Autoregressive Conditional Heteroscedasticity (GARCH) approach was used to forecast
monthly petroleum oil import prices of Ethiopia. GARCH(1,1) was found to be a
suitable model in forecasting monthly petroleum oil import prices of Ethiopia due to its
ability to capture the non constant conditional variance. Based on the fitted
GARCH(1,1) model monthly petroleum oil import prices were forecasted from July
2011 to June 2013. The forecasted results obtained from GARCH (1,1) model showed
that import petroleum oil prices are expected to increase from July 2011 to June 2013
with some fluctuations as a result of volatility
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Keywords
Petroleum Oil Import