Inflation Forecasting in the Western Balkans and EU: A Comparison of Holt-Winters, ARIMA and NNAR Models

Vesna Karadzic () and Bojan Pejovic
Additional contact information
Vesna Karadzic: University of Montenegro, Podgorica, Montenegro
Bojan Pejovic: University of Montenegro, Podgorica, Montenegro

The AMFITEATRU ECONOMIC journal, 2021, vol. 23, issue 57, 517

Abstract: The purpose of this paper is to compare the accuracy of the three types of models: Autoregressive Integrated Moving Average (ARIMA) models, Holt-Winters models and Neural Network Auto-Regressive (NNAR) models in forcasting the Harmonized Index of Consumer Prices (HICP) for the countries of European Union and the Western Balkans (Montenegro, Serbia and Northern Macedonia). The models are compared based on the values of ME, RMSE, MAE, MPE, MAPE, MASE and Theil's U for the out-of-sample forecast. The key finding of this paper is that NNAR models give the most accurate forecast for the Western Balkans countries while ARIMA model gives the most accurate forecast of twelve-month inflation in EU countries. The Holt-Winters (additive and multiplicative) method proved to be the second best method in case of both group of countries. The obtained results correspond to the fact that the European Union has been implementing a policy of strict inflation targeting for a long time, so the ARIMA models give the most accurate forecast of inflation future values. In the countries of the Western Balkans the targeting policy is not implemented in the same way and the NNAR models are better for inflation forecasting.

Keywords: Inflation; Holt-Winters models; Autoregressive Integrated Moving Average models; Neural Network Auto-regression models; forecasting (search for similar items in EconPapers)
JEL-codes: C51 C53 E31 E37 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
http://www.amfiteatrueconomic.ro/temp/Article_3014.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:aes:amfeco:v:23:y:2021:i:57:p:517

Access Statistics for this article

More articles in The AMFITEATRU ECONOMIC journal from Academy of Economic Studies - Bucharest, Romania Contact information at EDIRC.
Bibliographic data for series maintained by Valentin Dumitru ().