Forecasting inflation in Malaysia
This paper aims to identify the best indicator in forecasting inflation in Malaysia. In methodology, the study constructs a simple forecasting model that incorporates the indicator/variable using the vector error correction (VECM) model of quasi-tradable inflation index and selected indicators: c...
| Main Authors: | , , , |
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| Format: | Article |
| Language: | English English |
| Published: |
Wiley Online Library
2010
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| Subjects: | |
| Online Access: | http://irep.iium.edu.my/3859/ http://irep.iium.edu.my/3859/ http://irep.iium.edu.my/3859/ http://irep.iium.edu.my/3859/1/FOR_1154_Rev_EV.pdf http://irep.iium.edu.my/3859/4/forecasting_inflation.pdf |
| Summary: | This paper aims to identify the best indicator in forecasting inflation in
Malaysia. In methodology, the study constructs a simple forecasting model that
incorporates the indicator/variable using the vector error correction (VECM)
model of quasi-tradable inflation index and selected indicators: commodity
prices, financial indicators and economic activities. For each indicator, the
forecasting horizon used is 24 months and the VECM model is applied for
seven sample windows over sample periods starting with the first month of
1980 and ending with the 12th month of every 2 years from 1992 to 2004. The
degree of independence of each indicator from inflation is tested by analyzing
the variance decomposition of each indicator and Granger causality between
each indicator and inflation. We propose that a simple model using an aggregation
of indices improves the accuracy of inflation forecasts. The results support
our hypothesis. |
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