MODELLING INFLATION WITH RANDOM WALK MODELS: SHORT AND LONG HORIZONS
Journal Title: International Journal of Engineering, Business and Enterprise Applications - Year 2015, Vol 13, Issue 1
Abstract
This study is aimed at modelling and forecasting inflation at shorter and longer horizons using random walk models and therefore evaluate the forecast capability of random walk models at shorter and longer horizons. Taking into account seasonality of data, the author estimated the SARIMA models and found that indeed random walk models have strong ability in forecasting financial variables at shorter than longer time horizons. The study also established that previous values of the inflation and the error terms contain information that is necessary for predicting the future values of inflation.
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