UPM Institutional Repository

Forecasting inflation in Malaysia


Duasa, Jarita and Ahmad, Nursilah and Ibrahim, Mansor and Zainal, Mohd Pisal (2010) Forecasting inflation in Malaysia. Journal of Forecasting, 29 (6). pp. 573-594. ISSN 0277-6693; ESSN: 1099-131X


This paper aims to identify the best indicator in forecasting inflation in Malaysia. In methodology, the study constructs a simple forecasting model that incorporates the indicator/variable using the vector error correction (VECM) model of quasi‐tradable inflation index and selected indicators: commodity prices, financial indicators and economic activities. For each indicator, the forecasting horizon used is 24 months and the VECM model is applied for seven sample windows over sample periods starting with the first month of 1980 and ending with the 12th month of every 2 years from 1992 to 2004. The degree of independence of each indicator from inflation is tested by analyzing the variance decomposition of each indicator and Granger causality between each indicator and inflation. We propose that a simple model using an aggregation of indices improves the accuracy of inflation forecasts. The results support our hypothesis.

Download File

Text (Abstract)
Forecasting inflation in Malaysia.pdf

Download (86kB) | Preview

Additional Metadata

Item Type: Article
Divisions: Faculty of Economics and Management
DOI Number: https://doi.org/10.1002/for.1154
Publisher: John Wiley & Sons
Keywords: Inflation forecaster; VECM model; Malaysian economy
Depositing User: Nabilah Mustapa
Date Deposited: 10 Apr 2019 01:48
Last Modified: 10 Apr 2019 01:48
Altmetrics: http://www.altmetric.com/details.php?domain=psasir.upm.edu.my&doi=10.1002/for.1154
URI: http://psasir.upm.edu.my/id/eprint/14799
Statistic Details: View Download Statistic

Actions (login required)

View Item View Item