**2. Literature review**

Macroeconomist in developed and developing countries have emphasised the impact of exchange rate volatility on macroeconomic performance. In developed countries, using ARCH and GARCH models, [12] examine the link between exchange rate volatility and trade. The result disclosed that bilateral exchange rate volatility lowered trade between countries but displayed positive contribution to trade. Also, asymmetric effect was found between trade-depressing effect and trade promoting effect which are larger for external volatility and swings in volatility. [13] estimated the effect of exchange rate volatility on trade between 1999 and 2009. It was found that upsurge in real exchange rate volatility exhibited negative impact on import and export in the long-run. [14] examined the relationship between exchange rate and inflation in UK and Turkey from 2005 to 2014. The result revealed that purchasing power parity does not occur in Turkey and this might be due to some related factors.

In developing countries, employing the ARCH and GARCH models, [15] examined the effect of exchange rate volatility on macroeconomic performance in Sudan. GARCH technique and two stage Least Square Methods with data series from 1979 to 2009 showed that Real Effective Exchange Rate (REER) volatility exhibited harmful effects on flow of Foreign Direct Investment (FDI) and economic growth. [16] estimated the direct effect of real exchange rate volatility on trade balance in Iran between 1993 and 2011. Result showed that REER had no significant effect on trade balance and trade balance is not affected by export but import. [17] used annual data from periods between 1980 and 2013 to examine the effects and cause of volatility of exchange rate on growth in Ghana. It was established that extreme volatility is dangerous for economic growth. However, decomposition of shocks to exchange rate indicated that three quarter of exchange rate volatility is self-driven. Considering sub-Saharan countries (SSA), [18] investigated the impact of exchange rate volatility on trade applying data spanning from 1993 to 2014. The result found no effect on import when pooled mean group estimators and GARCH model was used. However, negative effect of exchange rate volatility on export transpired in short-run while positive effect occurred in long- run. Considering seven (7) developing countries, [19] investigated effect of exchange rate volatility on FDI and trade along "One Belt and One Road". Panel data series from 1995 to 2016 in addition to techniques of Threshold Autoregressive Conditional Heteroskedasticity (TGARCH) was used. Result showed that exchange rate volatility affected FDI and trade in OBOR related countries.

In Nigeria, [20] reported the presence of overshooting volatility shocks while investigating consistency, severity and persistency of exchange rate volatility from 1986 to 2008. [21] focused on monthly data from 2000 to 2015 in examining impact of exchange rate volatility on trade balance in Nigeria, a long run relationship was found between exchange rate volatility and trade. [22] investigated the impact of exchange rate volatility and the role exchange rate policy plays in Nigerian economy. Data spanning from 1996 to 2017 showed causal relationship between GDP growth and exchange rate volatility are inversely related but a bidirectional relationship occurred between RGDP and exchange rate. [23] investigated relationship between exchange rate volatility and inflation. Quarterly data ranging from 1970Q1–2014Q4 was employed. Result showed there was no causal relationship between real exchange rate and inflation.

[24] examined the interaction among exchange rate volatility, interest rate and exchange rate pass-through in Nigeria. Monthly time series spanning from 1970 to 2008 was used. The result showed there exist positive relationship among the variables in long run but negative nexus existed between inflation and exchange rate

volatility in short-run. [25] examined exchange rate volatility and sectorial export oil and non-export sectors in Nigeria using annual data from 1980 to 2011. GARCH techniques was employed to measure volatility of exchange rate while Seemingly Unrelated Regression was used to estimate coefficient of two-system equation. The result suggested exchange rate was unpredictable whereas the SUR model showed existence of negative relationship between export performance and exchange rate volatility of non-oil and oil sector. [26] used ARCH model and extension (GARCH, Exponential Generalised ARCH (EGARGH) and Threshold (TGARCH)) to examine effect of exchange rate volatility on export of non-oil in Nigeria. Quarterly data spanning from 1986Q1–2014Q4 was used in conjunction with ECM technique. The result confirmed presence of exchange rate volatility and existence of negative impact on non-oil export.

In view of the empirical literature above, the gap identified is the issue of measurement of exchange rate volatility. Several methods have been employed in measuring volatility: moving average, ARCH and GARCH models. [21] are of the opinion that GARCH is the right model for modelling volatility in Nigeria. But because the measurement of volatility is of great importance to macroeconomic performance, there is need to employ non-linear GARCH model due to its advantages of positive variance irrespective of estimated parameters and its asymmetric effects on innovations [27]. Furthermore, according to [28], asymmetric GARCH have revealed better results than simple GARCH models.
