Abstract

The interaction between exchange rate volatility and economic growth has been the subject of intense
debate among the policymakers, professionals and other stake- holders of the economy. The exchange
rate is an important macroeconomic fundamental that influences the economy of a country. The study
seeks to investigate Volatility Spillover between Nigerian and South African Economy using Bivariate
GARCH Models. The data used in this research is daily exchange rate for the period eighteen (18)
years (from 01/01/2002 to 31/12/2020) obtained from the websites of Central Bank of Nigeria and that
of Federal Reserve Bank of Louis, U.S.A. The result indicates that all the three models considered
(VECH, DBEKK and CCC) show evidence of impact of the exchange rate shocks on Nigerian and
exchange rate volatility of South African markets. In addition VECH model was able to capture
volatility spillover (own and cross) between the two markets which indicates that there is a causal
relationship between the past volatility shocks in Nigeria and recent volatility in the South African
markets. Conclusively, based on minimum information criteria, the VECH model is found to be the
best model.

Key words: Bivariate GARCH Models, Volatility Spillover, Volatility clustering, BRICS, Bilateral Relations.