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Wednesday, April 25, 2007

Inflation forecast

CPI inflation has surged above the 3 percent mark in March, for the first time since the Bank’s independence.

I have fitted several models (in SAS) and chosen the one with the lowest Bayesian Information Criterion which is the integrated MA(1) with one seasonal lag and no intercept. The 12-step ahead forecast shows a decrease in inflation. The forecast for April is 3.0. However, the uncertainty (confidence bands) is huge.

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