Using Models of the GARCH Family to Estimate the Level of Food and Non-Food Inflation in Ethiopia

Teshome Abebe

Journal of Applied Economic Research, 2021, vol. 20, issue 4, 726-749

Abstract: An increase in inflation volatility implies higher uncertainty about future prices. As a result, producers and consumers can be affected by the increased inflation volatility, because it increases the uncertainty and the risk in the market. Thus, inflation volatility attracts the attention of researchers to find a suitable model which can predict the future conditions of the market. This study aims to fit appropriate ARMA-GARCH family models for food and non-food inflation rate of from the period January 1971 through June 2020. Since the main objective of the study is identifying an appropriate model for inflation series, the null and alternative hypotheses are defined in comparison of the two types of models. H0: The symmetric GARCH models better capture inflation volatility of Ethiopia. H1: The asymmetric GARCH models better capture inflation volatility of Ethiopia. The ARMA-GARCH family models were applied to capture the stylized facts of financial time series such us leptokurtic, volatility clustering and leverage effects. The mean model results show that, an ARMA (1, 2) and ARIMA (0, 1, 1) models are identified as the best fitted model for food and non-food inflation, respectively. From the estimation results of volatility model, an asymmetric TGARCH (1, 1) model with Student's t- distributional assumptions of the residual is the best model for non-food inflation. Thus, modeling of information, news of events is very significant determinants of volatility and GARCH family models are appropriate for the given series (monthly food-inflation volatility) of Ethiopia under the study period considered.

Keywords: food inflation; non-food inflation; ARMA-GARCH family; Ethiopia. (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://journalaer.ru//fileadmin/user_upload/site_15934/2021/05_Abebe.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:aiy:jnjaer:v:20:y:2021:i:4:p:726-749

DOI: 10.15826/vestnik.2021.20.4.028

Access Statistics for this article

Journal of Applied Economic Research is currently edited by Igor Mayburov

More articles in Journal of Applied Economic Research from Graduate School of Economics and Management, Ural Federal University Contact information at EDIRC.
Bibliographic data for series maintained by Natalia Starodubets ().