Exchange rates stability is an important monetary policy target. Hence monetary authorities aim at avoiding wide divergence between the official exchange rate and parallel exchange rates in most developing economies. This paper employs GARCH (1,1) and GJR-GARCH (1,1) models to estimate and compare volatilities of official, interbank, and bureaux de change markets Naira/US$ exchange rates for the January 1995–December 2014 period. The results of the study show that the volatilities of interbank and bureaux de change exchange rates in the previous periods influence current volatility of exchange rates. The results also show evidence of volatility clustering in the interbank market and bureaux de change Naira/US$ exchange rates. Sum of the ARCH and GARCH coefficients indicates evidence of volatility persistence in the exchange rates returns series. Comparative analysis between the exchange rates volatilities shows that the magnitude of impact of volatility shocks on current volatility as well as volatility clustering are greater in bureaux de change than in other exchange rates in Nigeria. The asymmetric parameter indicates that exchange rates depreciation tends to produce higher volatility in the immediate future than appreciation of the same magnitude in both the interbank and bureaux de change markets in Nigeria.
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