Addition of Subset and Dummy Variables in the Threshold Spatial Vector Autoregressive with Exogenous Variables Model to Forecast Inflation and Money Outflow

Setiawan Setiawan (), Gama Putra Danu Sohibien, Dedy Dwi Prastyo, Muhammad Sjahid Akbar and Anton Abdulbasah Kamil
Additional contact information
Setiawan Setiawan: Department of Statistics, Faculty of Science and Data Analytics, Institut Teknologi Sepuluh Nopember, Surabaya 60119, Indonesia
Gama Putra Danu Sohibien: Department of Applied Statistics, Politeknik Statistika STIS, Jakarta 13320, Indonesia
Dedy Dwi Prastyo: Department of Statistics, Faculty of Science and Data Analytics, Institut Teknologi Sepuluh Nopember, Surabaya 60119, Indonesia
Muhammad Sjahid Akbar: Department of Statistics, Faculty of Science and Data Analytics, Institut Teknologi Sepuluh Nopember, Surabaya 60119, Indonesia
Anton Abdulbasah Kamil: Faculty of Economics, Istanbul Gelisim University, Istanbul 34315, Turkey

Economies, 2024, vol. 12, issue 12, 1-27

Abstract: The TSpVARX model can be used in inflation and money outflow forecasting by accommodating the reciprocal relationship among endogenous variables, the influence of exogenous variables, inter-regional linkages, and the nonlinearity of the relationship between endogenous and predetermined variables. However, the impact of some events, such as Eid al-Fitr and fuel price adjustments, still cannot be accommodated in the TSpVARX model. This condition causes inflation and money outflow forecasting using TSpVARX to be unsatisfactory. Our study is to improve the forecasting performance of the TSpVARX model by adding subset and dummy variables. We use a 12th lag subset variable to capture seasonal effects and a dummy variable to represent fuel price changes. These additions enhance the model’s accuracy in forecasting inflation and money outflow by accounting for recurring patterns and specific events, like fuel price changes. Based on the RMSE values of the training and testing data, we can conclude that forecasting inflation and money outflow using TSpVARX with the addition of subset and dummy variables is better than the regular TSpVARX. The inflation and money outflow forecasting generated after the addition of subset and dummy variables are also more fluctuating as in the movement of the actual data.

Keywords: nonlinear time series; threshold spatial; SpVAR; inflation; subset variable; TSpVARX (search for similar items in EconPapers)
JEL-codes: E F I J O Q (search for similar items in EconPapers)
Date: 2024
References: View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.mdpi.com/2227-7099/12/12/352/pdf (application/pdf)
https://www.mdpi.com/2227-7099/12/12/352/ (text/html)

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:gam:jecomi:v:12:y:2024:i:12:p:352-:d:1547999

Access Statistics for this article

Economies is currently edited by Ms. Hongyan Zhang

More articles in Economies from MDPI
Bibliographic data for series maintained by MDPI Indexing Manager ().