FORECASTING INFLATION IN SIERRA LEONE USING ARIMA AND ARIMAX: A COMPARATIVE EVALUATION. MODEL BUILDING AND ANALYSIS TEAM

Abstract

The study has provided empirical investigation of both ARIMA and ARIMAX methodology as a way of providing forecast of Headline Consumer Price Index (HCPI) for Sierra Leone based on data collected from the Sierra Leone Statistical Office and the Bank of Sierra Leone. In this, the main research question of addressing outcomes from in and out-of-sample forecast were provided using the Static technique and this shows that both methodologies were proved to have tracked past and future occurrences of HCPI with minimal margin of error as indicated in the MAPE results. In a similar note, the key objective of identifying whether the ARIMAX methodology or the ARIMA methodology is a better predictor of forecasting future trends in HCPI. However, on the whole, both ARIMA and ARIMAX seem to have provided very good outcome in predicting future events of HCPI, particularly when Static technique is used as the option for forecasting outcomes, with the ARIMAX marginally coming out as the preferred choice on the basis of its evaluation outcomes.