Forecasting Model of Inflationary Process in Ethiopia
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Date
2008-07
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Abstract
The primary focus of monetary policy both in Ethiopia and elsewhere, has traditionally
been the maintenance of a low and stable rate of aggregate price inflation as defined by
commonly accepted measures such as the consumer price index. The control of inflation
is one of the problems facing a government wishing to encourage rapid economic
development. The aim of this study is to investigate the nature of inflation in Ethiopia and
construct a model that can be used to forecast future values. The exponential smoothing
method was employed and the forecasting performance of winter (additive) method was
found to be better. Two alternative approaches to model identification were considered,
the Box-Jenkins methodology and penalty jimction criteria. For Ethiopian monthly
inflation data covering the period 1997:08 to 2006:06 various possible ARMA models
were fitted. The comparative performance of these ARMA models were checked and
verified by using Akaike In/ormation Criteria, Schwartz Criteria, Root mean square
percentage error, Mean absolute error and Mean absolute percentage error.
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Forecasting Model of Inflationary Process