Munich Personal RePEc Archive

Understanding inflation dynamics in the United States of America (USA): A univariate approach

NYONI, THABANI (2019): Understanding inflation dynamics in the United States of America (USA): A univariate approach.

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Abstract

This paper uses annual time series data on inflation rates in the USA from 1960 to 2016, to model and forecast inflation using the Box – Jenkins ARIMA technique. Diagnostic tests indicate that the US inflation series is I (1). The study presents the ARIMA (2, 1, 1) model for predicting inflation in the US. The diagnostic tests further show that the presented parsimonious model is stable and acceptable for predicting annual inflation rates in the US. The results of the study apparently show that inflation in the US is likely to be less than 2% over the out-of-sample forecast period (i.e 10 years). The study encourages policy makers to make use of tight monetary policy measures in order to maintain price stability in the US.

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