Modeling the Inflation Rates in Liberia SARIMA Approach

Roland Fannoh, George Otieno Orwa, Joseph K. Mungatu

Abstract: Inflation measures the relative changes in the prices of commodities and services over a period of time. It is necessary to know the pattern of inflation in the country in order to formulate better policies that will control the inflation rates. In this paper; we used Box Jenkins methodology to build an ARIMA model for Liberias monthly inflation rates for the period January 2006 to December 2013 with a total of Ninety Six (96) data points. The result showed that ARIMA model was appropriate for modelling the inflation rates. ARCH-LM test and Ljung-box test performed on the residuals showed no evidence of ARCH effect and serial correlation respectively. Lastly; a 12 months forecast for the year 2013 with the model revealed that Liberia is likely to experience single digit inflation values. In glow of the forecasted result; we recommend that vigorous monetary policies and appropriate economic measure be adopted by government and some policy makers to make certain that the single digit inflation values aim is met.

Keywords: SARIMA models, Box Jenkins, Forecasting, Liberia, Inflation