Analysis of living cost by countries using vine copula approach

Living cost is defined as the amount of money needed to cover expenses for essential needs. At the onset of the pandemic, the cost of living rose while wages stagnated. As a result, people lost jobs. Therefore, this research aims to perform copula modelling for five variables; living cost, monthly wages, cost index, inflation rate, and purchasing power. A better understanding of the cost of living can help reduce future losses and enhance sustainable economic growth and employment. In this study, we conducted a living cost analysis using marginal distribution to generate a pseudo-observation. Then, we build the vine copula models, which are Regular vine (R-vine), Drawable vine (D-vine), and Canonical vine (C-vine). Then, we obtain and compare the Akaike Information Criterion (AIC) for the three models to determine the best-fitted model. The results of AIC reveal that both C-vine and D-vine are suitable for modelling living cost analysis.

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