Econometric Estimation of Rice Price Volatility in Nigeria (1981 – 2021): Application of GARCH and ARCH Models

Abstract

Objective: Given the recent unprecedented magnitude of food price volatility, this study aims to determine the level of rice price volatility in Nigeria. Methods: The GARCH and ARCH models are employed to examine the presence of price volatility, while the ARDL model is used to identify the drivers of rice price volatility in Nigeria. Results: Empirical evidence indicates that inflation and the real exchange rate positively influence rice price volatility at the 10% and 5% significance levels, respectively. Conversely, rice production, the first lag of rice price, and government expenditure on agriculture have negative effects on rice price volatility. In the short run, the first lag of rice price and total foreign direct investment in agriculture are negatively associated with volatility at the 1% and 5% significance levels, respectively. Furthermore, forecast of a food commodity (rice price) can be relatively explained by the past price volatility of the same commodity and that of others. Conclusion: ARCH and GARCH techniques show that rice prices in Nigeria are highly volatile. Given the relatively stronger impact of unexpected shocks compared to seasonal fluctuations, the findings suggest that policymakers should exercise caution when formulating policies that affect imported rice prices—particularly protectionist trade and exchange rate policies that may intensify price volatility.