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Forecasting CPI

Forecasting CPI. Xiang Huang , Wenjie Huang, Teng Wang , Hong Wang Benjamin Wright , Naiwen Chang, Jake Stamper. Definition. The consumer price index (CPI) measures the cost of a standard basket of goods and services commonly purchased by households.

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Forecasting CPI

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  1. Forecasting CPI Xiang Huang , Wenjie Huang, Teng Wang , Hong WangBenjamin Wright , Naiwen Chang, Jake Stamper

  2. Definition The consumer price index (CPI) measures the cost of a standard basket of goods and services commonly purchased by households. The index is published monthly by the Bureau of Labor Statistics, and is used to calculate the rate of inflation.

  3. CPI index since 1983 Trace Histogram

  4. Time Trend Forecast

  5. Correlogram of CPI Evidence of an evolutionary series. Use first-differencing to pre-whiten and obtain a stationary series.

  6. First-Difference of CPI Trace Histogram

  7. Correlogram of DCPI Add AR(1),AR(2),and MA(12)

  8. UnitRoot of DCPI Augmented Dickey-Fuller is sufficiently negative, rejecting the presence of a unit root.

  9. ARIMA MODEL OF DCPI Cycle Calculation: Tan theta=0.36/0.28=1.2857 Theta=52.125 degree Cycle=360/52.125=6.9 years

  10. ARIMA MODEL OF DCPI Actual, Fitted and Residuals Graph Histogram of Residuals

  11. Correlogram of Residuals Breusch-Godfrey Serial Correlation Test

  12. Add ARCH(1) Correlogram of Square Residuals

  13. Correlogram Add ARCH(1) and GARCH(1) in ARIMA model

  14. Drop AR(2) Trace of the standardized residuals

  15. Correlogram of Standardized Squared Residuals Histogram of Standardized Squared Residuals

  16. Exponential Smoothing Forecast

  17. Attempt to Create Distributed Lag Model No Granger Causality for Relevant Variables • GDP • Unemployment Rate • Capacity Utilization • Industrial Production • Manufacturing Production • Commercial and Industrial Loans • Consumer Loans • Consumer Sentiment • Money Supply (M2) • Federal Funds Rate Without Granger Causality, no distributed lag model could be crated

  18. True value CPI in April 2011: 224.43 True value CPI in April 2011: 224.43 Comparison of Different Models Actual Value of CPI in April 2011: 224.43

  19. Forecast for May 2011

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