Forecasting Nigerian Inflation using Model Averaging methods: Modelling Frameworks to Central Banks

Mohammed M Tumala, Olusanya E Olubusoye, Baba N Yaaba, Olaoluwa Yaya and Olawale B Akanbi
Authors registered in the RePEc Author Service: Yaaba Baba Nmadu ()

MPRA Paper from University Library of Munich, Germany

Abstract: As a result of the adverse macroeconomic effect of inflation on welfare, fiscal budgeting, trade performance, international competitiveness and the whole economy, inflation still remains a subject of utmost concern and interest to policy makers. The traditional Philips curve as well as other methodologies have been criticized for their inability to track correctly the pattern of inflation, particularly, these models do not allow for enough variables to be included as part of the regressors, and judgment is often made by a single model. In this work, model averaging techniques via Bayesian and frequentist approach were considered. Specifically, we considered the Bayesian model averaging (BMA) and Frequentist model averaging (FMA) techniques to model and forecast future path of CPI inflation in Nigeria using a wide range of variables. The results indicated that both in-sample and out-of-sample forecasts were highly reliable, judging from the various forecast performance criteria. Various policy scenarios conducted were highly fascinating both from the theoretical perspective and the prevailing economic situation in the country.

Keywords: Bayesian model averaging; Forecasting; Frequentist approach; Inflation rate; Nigeria (search for similar items in EconPapers)
JEL-codes: C30 C32 C5 (search for similar items in EconPapers)
Date: 2017-12, Revised 2018-02
New Economics Papers: this item is included in nep-afr, nep-for, nep-mac and nep-mon
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