A Predictive Model for Monthly Currency in Circulation in Ghana

Abstract

The Currency in Circulation is the outstanding amount of notes and coins circulated in the economy and are the most liquid monetary aggregate. In this study, secondary data on monthly Currency in Circulation obtained from the Bank of Ghana database was modelled using the Seasonal Autoregressive Integrated Moving Average model. The result revealed that ARIMA (0, 1, 1)(0, 1, 1)₁₂ model was appropriate for modelling the Currency in Circulation. This model has the least AIC of -372.16, AICc of -371.97, and BIC of -363.53. Diagnostic test of the model residuals with the Ljung-Box and ARCH-LM test revealed that the model is free from higher order autocorrelation and conditional heteroscedasticity respectively. Thus, we proposed ARIMA (0, 1, 1)(0, 1, 1)₁₂ model for predicting the Currency in Circulation in Ghana. However, continues monitoring of the forecasting performance of this model is necessary to make the use of this model more realistic.

Keywords: Currency in Circulation, Liquidity, Monetary aggregate