Modeling Retail Price Volatility of Selected Food Items in Cross River State, Nigeria Using GARCH Models

Food inflation presents a significant challenge in Nigeria. This study examines the volatility of four primary food items—tomatoes, yam, yellow garri, and imported rice—in Cross River State, Nigeria, utilizing data on monthly retail prices per kilogram from January 1997 to November 2023, sourced from the National Bureau of Statistics (NBS). Three asymmetric volatility models were employed: Exponential Generalized Autoregressive Conditional Heteroscedasticity (EGARCH), Threshold Autoregressive Conditional Heteroscedasticity (TARCH), and Power Autoregressive Conditional Heteroscedasticity (PARCH). The parameters of these models were estimated using three distributions of error innovations: Normal, Student's t-distribution, and Generalized Error Distribution (GED). The performance of the models was assessed based on log-likelihood for fitness and Root Mean Square Error (RMSE) for forecasting accuracy. The results indicated that non-Gaussian error innovations outperformed the normal distribution. Notably, higher persistence in volatility was observed for yam and tomatoes compared to yellow garri and imported rice. Tomatoes exhibited the highest volatility persistence among the food items analyzed. Significant Generalized Autoregressive Conditional Heteroscedasticity (GARCH) terms for tomatoes and yam suggested that past volatility has a significant positive impact on their current volatility, whereas this effect was not significant for yellow garri and imported rice (p$<$0.05). The leverage effect was found to be insignificant, indicating that positive and negative shocks in volatility exert similar effects on the volatility of these food items. These findings underscore the urgent need for incentives and adequate security measures to ensure food sufficiency in Cross River State and Nigeria at large.