Could Econometric Models Predict Higher Inflation? Time Series Modelling and Inflation Rate Forecasting
Keywords:
Time series data, HCIP, ARMA, VAR, residual analysis, inflation modelling and forecastingAbstract
This research utilizes annual time series data on HICP to identify the most suitable econometric model for forecasting the inflation rate in Poland. In this study, we have compared and applied the Autoregressive Moving Average (ARMA) model and the Vector Autoregressive (VAR) model to predict the annual inflation rate using data from January 2002 to December 2020. Various methods are employed to determine the optimal model specifications, followed by the generation of forecasts within a rolling estimation window. The results consistently indicate that the ARMA (2, 0) model outperforms other specifications in forecasting Polish inflation. These findings suggest that the inflation rate is expected to continue its downward trend in the coming years. Consequently, this study offers valuable insights for guiding future actions and policymaking in response to prospective inflation scenarios.
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