Using GARCH and ARCH Models to Forecasting Money Supply in Sudan: An Econometric Study at 2007-2029

Abstract

The aim of the study is to use GARCH- ARCH Models for forecasting in function of money supply in Sudan during the period 2007-2029 AD. And also, to build and diagnose the best suitable model for transportation in the rate of inflation and exchange and its effect on the money supply. The problem of the study is in the following questions: To what extent can we rely on autoregressive models for conditional variance, and autoregressive models for generalized conditional variance in analysis of time series data and forecasting the change of money supply Function in Sudan during the period from 2007 to 2029 AD. Is there a relationship between the money supply as a dependent variable and inflation, and exchange rate as an independent variable to verify the above? The study relied on the descriptive approach in studying the behavior of the phenomenon above, and the econometric approach. Also, it =relied upon the use of GARCH- ARCH models using the data of annual time series date during the above period. The most important results of the study: The best model for forecasting money supply function in Sudan, is the GARCH (0,1) Model, the average equation also revealed the existence of a direct relationship and significant between inflation rates. There is also direct and significant of the relationship between the exchange rate and the money supply; is an inverse relationship. The reason for this may be the problem of collection data. The most important recommendations of the study are the necessity of using other model such as (TGARCH- ARCH-M) to forecast money supply, because (GARCH- ARCH) models take effects only for random variables that working on comprehensive economic reform and rebalancing in restoring balance in the economic sectors.