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Fauzi Insan Estiko
Department of Economics, Hanyang University, Seoul, South Korea
Economics, Econometrics & Finance

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Analysis of Indonesia’s Inflation Using ARIMA and Artificial Neural Network Fauzi Insan Estiko; Wahyuddin S.
Economics Development Analysis Journal Vol 8 No 2 (2019): Economic Development Analysis Journal
Publisher : Economics Development Department, Universitas Negeri Semarang, Indonesia

Show Abstract | Download Original | Original Source | Check in Google Scholar | DOI: 10.15294/edaj.v8i2.29074

Abstract

This study aims to compare forecast performance of Neural Network (NN) to ARIMA in the case of Indonesia’s inflation and to find if there is any interesting trend in Indonesia’s inflation. We use year-on-year monthly Indonesia’s inflation data from 2006:12 to 2018:12 released by Bank Indonesia (BI) and the Indonesian Central Bureau of Statistics (CBS). We divide the series into 3 data series to capture the trend in the inflation (i.e DS1, DS2 and DS3). The data set 1 (DS1) covers data from 2006:12 to 2014:08, DS2 from 2006:12 to 2018:12, dan DS3 from 2010:12 to 2018:12. The series is then processed using the standard ARIMA method and NN model. We found that the NN model outperforms the ARIMA model in forecasting inflation for each respective series by analysing its Root Mean Squared Error (RMSE). We also found that short term lagged-inflation (backward-looking) variable has lesser effect on inflation compared to the more recent series.
Co-Authors Wahyuddin S.