Modeling And Forecasting Inflation In India

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Modeling and Forecasting Inflation in India
We have foreshadowed urban non-manual employees quarterly CPI data of the at long last five old age to measure inflation using 3 different methods. so we have selected the method which yielded the best results. The three forecasting methods apply atomic number 18 Single Exponential Smoothing rule, Holts Linear Method and Holt-Winters Trend and Seasonality Method.
Single Exponential Smoothing Method
In the SES method, the highest weights are assigned to the most recent observations and the weights decrease exponentially as the observations get older. This method takes the forecast hold dear of the previous breaker point and adjusts it for forecast error. SES does not work well when there is a trend present in the data. The convening used in the SES method is
Ft+1= ?Yt+(1-?)Ft
where ? is a constant amidst 0 and 1, Yt is the observation of the previous breaker point and Ft is the forecasted value of the previous period.
For initializing the process we use Y1= F1 and assume the smoothing constant to be ?=0.3. then using the above formula we forecast the determine for the next 20 quarters and compare the results with the actual value for those periods. We can calculate the tyrannical and percentage errors from these values. The mean absolute error(MAE) is approximately 14.



17, while the root mean square error(RMSE) is 15.20 and the mean absolute percentage error(MAPE) is 2.13%.
On the basis of the forecast obtained for the last period we can forecast the value for the coming period by adjusting for the error term using the formula tell above. We get the forecast for the next quarter as 708.79. this forecast value is used for the next four quarters as well.

Holts Linear Method
Holts linear method is distract for data which contains trend. Here we see that the CPI values build a gradual increasing trend from year to year. The formula for Holts LES method is as follows


where Lt denotes the estimate of the level of the series at time t...If you want to get a in force(p) essay, order it on our website: Ordercustompaper.com



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