Group 9 - Mid - Term Assignment

FOREIGN TRADE UNIVERSITY
FACULTY OF INTERNATIONAL ECONOMICS

---------***--------
ECONOMICS FORECAST REPORT

FORECAST VIETNAM MONTHLY CONSUMER PRICE
INDEX FROM JANUARY 2019 TO JUNE 2019
Lecturer : PhD. Chu Thị Mai Phương

Course ID : KTEE418BS.1
Group members:
Tạ Mai Linh: 1714450039
Vũ Thị Thu Nga: 1714410079
Hoàng Minh Quyên: 114410027
Hanoi, May 2020

TABLE OF CONTENTS
CHAPTER 1: INTRODUCTION ................................................................................. i
CHAPTER 2: METHODOLOGY AND DATA DESCRIPTION ............................ 2
2.1. Exponential Smoothing Method ....................................................................... 2
2.1.1. Exponential Smoothing Method: ............................................................... 2
2.1.2. Double Exponential Smoothing Method ................................................... 3
2.1.3. The Holt exponential smoothing method: ................................................ 3
2.1.4. The Winter Exponential Smoothing Method: .......................................... 3
2.2. Forecast by Analysis Method ............................................................................ 4
2.3. Forecast by ARIMA Model ............................................................................... 6
CHAPTER 3: FORECAST PROCESS AND RESULT ............................................ 8
3.1. Exponential Smoothing Method ....................................................................... 8
3.1.1. Single Exponential Smoothing Method..................................................... 8
3.1.2. Double Exponential Smoothing ............................................................... 10
3.1.3. Holt Exponential Smoothing .................................................................... 12
3.1.4. Winter Exponential Smoothing ............................................................... 13
3.1.5. Analytics Method ...................................................................................... 16
3.1.6. Forecast using ARIMA model ................................................................. 21
CHAPTER 4: CONCLUSION AND RECOMMENDATIONS ............................. 30
REFERENCES............................................................................................................33
LIST OF TABLES
Table 3-1. Result of the Single Exponential Smoothing Method .............................. 9

Table 3-2. Forecasted values of CPI in Vietnam from January 2019 to June 2019
using Single Exponential Smoothing Method ............................................................. 9
Table 3-3. The result of Double Exponential Smoothing ......................................... 10
i
using Double Exponential Smoothing Method ......................................................... 11
Table 3-5. The result of Holt Exponential Smoothing ............................................. 12
using Holt Exponential Smoothing Method .............................................................. 12
Table 3-7. The result of Winter Exponential Smoothing ........................................ 15
using Winter Exponential Smoothing Method ......................................................... 15
Table 3-9. Result of Analytics method ....................................................................... 17
Table 3-10. Collinearity test result ............................................................................. 18
Table 3-11. Heteroskedasticity test result ................................................................. 19
Table 3-12. Omitted variable test result .................................................................... 19
Table 3-13. Predicted values of CPI in Vietnam from January 2019 to June 2019
using Analytics Method ............................................................................................... 20
Table 3-14. Unit Root Test result ............................................................................... 21
Table 3-15. Correlogram Specification of CPI ......................................................... 22
Table 3-16. Seasonal ARIMA model result ............................................................... 23
Table 3-17. Stable and invertible test result .............................................................. 23
Table 3-18. Predicted result of CPI in Vietnam from January 2019 to June 2019
using ARIMA Method ................................................................................................. 24
Table 3-19. Unit Root Test result ............................................................................... 25
Table 3-20. Correlogram Specification of CPI ......................................................... 26
Table 3-21. Non-seasonal ARIMA model result ....................................................... 27
Table 3-22. Stable and invertible test result .............................................................. 27
using SARIMA Method............................................................................................... 28
Table 4-1. Predicts monthly CPI from January 2019 to June 2019 using different
method .......................................................................................................................... 30
Table 4-2. Predicted CPI from January 2019 to June 2019 using Analytics method31
ii
LIST OF FIGURES
Figure 2-1.Summarization of VNIndex data............................................................... 7

Figure 2-2. GPI by Season ............................................................................................ 8
Figure 3-1. Forecasted values of CPI in Vietnam from January 2019 to June 2019
using Single Exponential Smoothing Method ........................................................... 10
using Double Exponential Smoothing Method ......................................................... 11
using Holt Exponential Smoothing Method .............................................................. 13
Figure 3-4. CPI line graph .......................................................................................... 14
using Winter Exponential Smoothing Method ......................................................... 16
Figure 3-6. Normality test result ................................................................................ 18
Figure 3-8. Predicted values of CPI in Vietnam from January 2019 to June 2019
Figure 3-9. Forecasted result of CPI in Vietnam from January 2015 to January 2016
using ARIMA Method ................................................................................................. 24
Figure 3-10. Forecasted result of CPI in Vietnam from January 2015 to January
2016 using ARIMA Method ........................................................................................ 25
2016 using SARIMA Method ..................................................................................... 28
Figure 3-12. Forecasted result of CPI in Vietnam from January 2019 to June 2019
using SARIMA Method............................................................................................... 29
1
CHAPTER 1: INTRODUCTION
The CPI is an economic indicator that plays an important role in society. The CPI is
closely related to the inflation rate of a country in a given period. The volatility of the CPI
can have a huge impact on the domestic market, because when it exceeds the prescribed
threshold, it will cause inflation or deflation to weaken an economy in a short period of
time. The calculation and analysis of the CPI can not only make the an approximate
predictions about the future of the economy but also act as an announcement, helping the
government and people to prepare necessary measures to cope with or to change these
adverse effects.
Recognizing the importance of consumer price index in the economy, with the
knowledge of Economics 1, Economics 2, and Economic Forecasting, group uses
quantitative analysis, analyzing the monthly CPI from January 2014 to December 2018 to
implement the project: "FORECAST VIETNAM MONTHLY CONSUMER PRICE
INDEX FROM JANUARY 2019 TO JUNE 2019". Paper structure consists of 3 sections:
Chapter 1: Introduction
Chapter 2: Methodology and data description
Chapter 3: Forecast process and results
Chapter 4: Conclusion and recommendations
We would also want to express our gratitude toward PhD. Chu Thi Mai Phuong and the
Department of International Economics at Foreign Trade University for providing us with
the necessary background knowledge to complete the essay in the best way
During the forecasting process, due to the limited time and limited knowledge, the essay
may have many shortcomings, and we hope to receive your profound comments so that we
can improve the accuracy in our predict result.
CHAPTER 2: METHODOLOGY AND DATA DESCRIPTION
2.1. Exponential Smoothing Method

2.1.1. Exponential Smoothing Method:
Single exponential smoothing method formula:
Ft = Ft-1 + α(At-1 - Ft-1) with 0 < α < 1
In which:
2
- Ft - Forecast demand level for period t
- Ft-1 - Forecast demand level for period t-1
- At-i - Actual demand level for period t-i
- αt-i - Exponential smoothing coefficient
2.1.2. Double Exponential Smoothing Method

The method of double exponential is the double smoothing, which reflects the changing
trend of demand.
- Formula of double exponential smoothing method:
𝒀𝑫𝑬 𝑺𝑬 𝑺𝑬
𝒕 = (𝒀 )𝒕
Such that 𝒆𝟐𝒕 = ∑𝒏𝒕=𝟐(𝑭𝒕 − 𝒀𝑫𝑬 𝟐

𝒕 ) MIN
2.1.3. The Holt exponential smoothing method:

When the data set is biased, the single and double exponential smoothing method will
produce huge errors. The Holt method has a trend adjustment.
The Holt equation is written as follow:
 Estimated current average value: Ft = α At + (1- α)(Ft -1+ Tt-1)

 Estimated slope: Tt = β(Ft – Ft-1) + (1-β)Tt-1
 Forecast for the future period: Ft+h = Ft + h.Tt
In which:
- α = Exponential constant (0 < α < 1)

- At = Actual value at t
- Tt = Estimating trends
- β = The exponential constant estimates the trend (0 <b <1)
- h = The number of forecast periods (observations).
- Ft+h = Holt forecast value at t + h
2.1.4. The Winter Exponential Smoothing Method:

This method is used when data show both trend and seasonality.
However, when using the method of winter hats, we must consider the influence of the
following factors:
3
• The additive model: the influence of periodic and seasonal factors is not related to the
general level of the chain.
• The multiplication model: seasonal factors depend on trend and cyclical factors.
The Winter's equation:
*Estimate the current average value:
 The multiplication model: Ft = α.At/St-p + (1- α) (Ft-1 + Tt-1)

 The additive model: Ft = α(At - St-p) + (1- α) (Ft-1 + Tt-1)
*Estimate the trend value:
Tt = β(Ft – Ft-1) + (1-β)Tt-1
*Estimate the value of the trend indicator:
 The multiplication model: St = γAt/Ft + (1-γ) St-p

 The additive model: St = γ(At-Ft )+ (1-γ) St-p
*Forecast for h periods in the future:
 The multiplication model: Ft+h = (Ft + hTt) St+h-p

 The multiplication model: Ft+h = Ft + hTt+ St+h-p
In which:
- St = Seasonal estimation
- γ = Estimated constant of smoothing exponent (0 < γ <1)
- h = The number of periods (observations) for ahead estimation.
- P = The number of periods (observation) in the seasonal cycle
➔ The most effective model with the smallest RMSE/MAPE should be selected
2.2. Forecast by Analysis Method
- Step 1: Data identification
Check whether the data is a multiplication model or an additive model by observing the
trend of the series
4
- Step 2: Separate the seasonal elements from the series
Adjust the seasonal factor by the MA ratio
+ Calculate the value of CMA4 if the data by quarter, and CMA12 if the data by month
+ Calculate the ratio of observations, which is the ratio between the original series and
the moving average series
𝒀𝒕 𝒀(𝟏)𝟑 𝒀(𝟏)𝟒 𝒀(𝒎)𝟐

Ratio series: { }= { , ,…, }
𝒀𝑴𝑨
𝒕 𝒀𝑴𝑨
(𝟏)𝟑 𝒀𝑴𝑨
(𝟏)𝟒 𝒀𝑴𝑨
(𝒎)𝟐
+ Calculate the average ratio for each quarter / month.
+ Adjust the original series through seasonal indicators: there is a seasonal index every
quarter / month that reflects the seasonal impact. The adjusted series value is:
𝒀(𝒋)𝒊
 The multiplication model: 𝒀𝑺𝑨𝑹
(𝒋)𝒊 = 𝑺𝑹
 The additive model: = 𝒀𝑺𝑨𝑫
(𝒋)𝒊
𝑺𝑨𝑹
𝒀(𝒋)𝒊 - SDi
- Step 3: Estimate the trend function and forecast
+ Estimating the trend function.
+ Inspection of violations:
· Omitted variables test
· Self-correlation test
· Test of variance of error of change
· The standard distribution of noise test
+ Forecast in the sample
- Step 4: Combine the trendy and seasonal factors to give the final forecast results
+ From the estimation in the sample to get the result: the percentage of average error of
the smallest MAPE, we conduct the forecast outside the sample given by YSAF
+ The adjusted series value is:
 The multiplication model: Yf = . SR

 The additive model: Yf = +SD
5
2.3. Forecast by ARIMA Model
- Step 1: Check the stationary of serie

If each time-series is called the stationary state, then the mean, variance, (at different
lags) will remain constant even if they are determined at all times.
Average: E (Yt) = μ = const
Variance: Var (Yt) = const
In order to observe whether a time- series has been stationary or not, we can use the self-
regression model Yt = ρYt-1 + Ut, assuming:
+ If time- series is stationary at zero degree, we have I (d = 0).
+ If the first- degree difference of the stationary series we have I (d = 1).
+ If the second-degree differential of the stationary series we have I (d = 2)
For AR component (p), the relationship between present and past values is shown by the
following equation (2):
P values are identified through ACF and PACF charts. If the series is in the form of AR
(p), the PACF chart will have partial correlation coefficients that are statistically significant
from 1 to p and the values then will decrease rapidly to zero, and ACF has the coefficients.
The correlation will decrease to zero.
- Step 2: Estimate the parameters and select the model of the parameters
After checking the stationary, we will determine the degree of AR and MA components
through the autocorrelation chart (ACF) and the partial autocorrelation chart (PACF).
+ If the series is in the form of AR (p), the PACF chart will have partial correlation
coefficients that are statistically significant from 1 to p and the values, then will decrease
rapidly to zero, and ACF has the systems the correlation number will gradually decrease to
zero.
+ If the sequence is of the form MA (q), then the ACF chart will have the correlation
coefficients statistically significant from 1 to q and the subsequent values will decrease
rapidly to zero. As for PACF, the partial correlation coefficients will gradually decrease to
zero.
- Step 3: Verify the model.
6
+ Test the stability and reversibility
+ Test white noise
+ Test quality forecast
If testing the selected model is not satisfied, then go back the identification stage to
choose another more reasonable model.
- Step 4: Forecast outside the sample
After testing the error, if the model is suitable, the model will be used in the forecast.
The criteria used to compare forecast effectiveness are RMSE, MAE and R2.
3. Data description:
Our research dataset consists of 60 observations between January 2014 and December
2018 examining the Monthly Consumer Price Index of Vietnam, according to research
from General Statistics Office of Vietnam. It is clear that the consumer price index was
highest at 100.9 in August 2017 and went down to the lowest at 99.5 in May 2017. The
mean of our data is 100.2050 while the standard deviation is 0.318058.
Figure 2-1.Summarization of VNIndex data
Source: Author’s calculation using Eviews
From the dataset, the team made forecasts for the CPI of Vietnam from January 2014 to
December 2018 using a number of different methods such as exponential smoothing
method, analysis method and ARIMA model.
7
Figure 2-2. GPI by Season
We can see that the data has seasonal factor.
CHAPTER 3: FORECAST PROCESS AND RESULT
3.1. Exponential Smoothing Method
3.1.1. Single Exponential Smoothing Method
In Stata, we use the following steps:
 Proc => Exponential smoothing => Simple exponential smoothing => Single
The result are as follow:
8
Table 3-1. Result of the Single Exponential Smoothing Method
We have: α = 0.0070 and RMSE = 0.318483
Forecasted values of CPI in Vietnam from January 2019 to June 2019 are as in the
following table:
using Single Exponential Smoothing Method
Graph the differences between observed CPI and predicted CPI using Eview
 We run the following command: line cpi cpism
9
using Single Exponential Smoothing Method
3.1.2. Double Exponential Smoothing
 Proc=>Exponential smoothing => Simple exponential smoothing => Double
Table 3-3. The result of Double Exponential Smoothing

10
We have: α = 0.0010 and RMSE = 0.314324
following table:
using Double Exponential Smoothing Method
We run the following command: line cpi cpism
using Double Exponential Smoothing Method
11
3.1.3. Holt Exponential Smoothing
 Proc => Exponential smoothing => Simple exponential smoothing => Holt –
winter: No seasonal. The results are as follow:
Table 3-5. The result of Holt Exponential Smoothing
We have: α = 0.4700, β = 0 and RMSE = 0.333001
following table:
using Holt Exponential Smoothing Method
12
using Holt Exponential Smoothing Method
3.1.4. Winter Exponential Smoothing
First, we have to determine whether the data is Multiplicative or Additive. We run the
following command: line cpi
The result is as follow:
13
Figure 3-4. CPI line graph
According to the shape of the line graph, we can see that the data is Multiplicative
After having determine the data type, we proceed using the following step in Eview:
 Proc => Exponential smoothing => Simple exponential smoothing => Holt –
winter- Multiplicative
The result is as follow:
14
Table 3-7. The result of Winter Exponential Smoothing
We have: α = 0, β = 0, γ = 0, RMSE = 0.279173
following table:
using Winter Exponential Smoothing Method
15
Graph the differences between observed CPI and forecasted CPI using Eview
using Winter Exponential Smoothing Method
3.1.5. Analytics Method
- Step 1: Data identification
From Winter Exponential Smoothing, we have already determined the model as

Multiplicative
- Step 2: Separate the seasonal elements from the series
 Proc → Seasonal Adjustment → Moving Average → Adjustment Method →

Ratio to moving average – Multiplicative → Factors: sr
- Step 3: Estimate the trend function and forecast
Type the command: Genr t = @trend(2014M01) → ls cpi c t cpi(-1). We have the

following result:
16
Table 3-9. Result of Analytics method
 Verify the model

 Model significant:
We have the following pair of hypothesis:
𝐻0 : 𝑇ℎ𝑒 𝑚𝑜𝑑𝑒𝑙 𝑖𝑠 𝑖𝑛𝑠𝑖𝑔𝑛𝑖𝑓𝑖𝑐𝑎𝑛𝑡

{
𝐻1 : 𝑇ℎ𝑒 𝑚𝑜𝑑𝑒𝑙 𝑖𝑠 𝑛𝑜𝑡 𝑖𝑛𝑠𝑖𝑔𝑛𝑖𝑓𝑖𝑐𝑎𝑛𝑡
From the above table, we can see that variable CPI(-1) have p-value = 0.0051 < α = 0.05
=> Reject H0 => The model is significant
 Check for Collinearity:
𝐻0 : 𝑝 = 0 (𝑐𝑜𝑙𝑙𝑖𝑛𝑒𝑎𝑟𝑖𝑡𝑦 𝑑𝑜𝑒𝑠 𝑛𝑜𝑡 𝑒𝑥𝑖𝑠𝑡)

{
𝐻1 : 𝑝 ≠ 0 (𝑐𝑜𝑙𝑙𝑖𝑛𝑒𝑎𝑟𝑖𝑡𝑦 𝑒𝑥𝑖𝑠𝑡)
In Stata, choose View -> Residual Diagnostics -> Serial Correlation LM test
17
Table 3-10. Collinearity test result
From the above table, we can see that p-value = 0.1947 > α = 0.05 => Does not reject
H0 => Collinearity doesn’t exist
 Histogram – Normality test: In Stata, choose View -> Residual Diagnostics ->
Histogram – Normality LM test. We have the following graph:
Figure 3-6. Normality test result
Since number of observations is 59 -> The model pass Normality test
 Heteroskedasticity Test:
𝐻0 : 𝑝 = 0 (𝐻𝑒𝑡𝑒𝑟𝑜𝑠𝑘𝑒𝑑𝑎𝑠𝑡𝑖𝑐𝑖𝑡𝑦 𝑑𝑜𝑒𝑠 𝑛𝑜𝑡 𝑒𝑥𝑖𝑠𝑡)

{
𝐻1 : 𝑝 ≠ 0 (𝐻𝑒𝑡𝑒𝑟𝑜𝑠𝑘𝑒𝑑𝑎𝑠𝑡𝑖𝑐𝑖𝑡𝑦 𝑒𝑥𝑖𝑠𝑡)
In Stata, choose View -> Residual Diagnostics -> Heteroskedasticity Test. We have the
following result:
18
Table 3-11. Heteroskedasticity test result
From the above table, we can see that p-value = 0.1316 > α = 0.05 => Does not reject
H0 => Heteroskedasticity doesn’t exist
 Omitted variable test:
𝐻0 : 𝑝 = 0 (𝑂𝑚𝑖𝑡𝑡𝑒𝑑 𝑣𝑎𝑟𝑖𝑎𝑏𝑙𝑒 𝑑𝑜𝑒𝑠 𝑛𝑜𝑡 𝑒𝑥𝑖𝑠𝑡)

{
𝐻1 : 𝑝 ≠ 0 (𝑂𝑚𝑖𝑡𝑡𝑒𝑑 𝑣𝑎𝑟𝑖𝑎𝑏𝑙𝑒 𝑒𝑥𝑖𝑠𝑡𝑠)
In Stata, choose View -> Stability Diagnostics -> Ramsey RESET Test. We have the
following result:
Table 3-12. Omitted variable test result
From the above table, we can see that p-value = 0.000 < α = 0.05 => Reject H0 =>
Omitted variable exists
We will proceed to forecast CPI from 2014M01 2015M01 and obtain the following
result:
19
using Analytics Method
Mean Absolute Percent Error = 0.226791 < 5%
- Step 4: Combine the trend and seasonal factors to give the final forecast results
In Stata we use the following command Genr cpip = cpiaf1*sr and obtain the following
result:
Table 3-13. Predicted values of CPI in Vietnam from January 2019 to June 2019
To draw a graph we use the following command line cpip cpi
20
Figure 3-8. Predicted values of CPI in Vietnam from January 2019 to June 2019
3.1.6. Forecast using ARIMA model
3.1.6.1. Seasonal ARIMA model

- Step 1: Check the stationary of series:
In Eview, choose view → Unit Root Test → Level & Intercept and obtain the following
result:
Table 3-14. Unit Root Test result
21
𝐻0 : 𝛽 = 0 (𝐶𝑃𝐼 𝑖𝑠 𝑛𝑜𝑛 − 𝑠𝑡𝑎𝑡𝑖𝑜𝑛𝑎𝑟𝑦)

{
𝐻1 : 𝛽 ≠ 0 (𝐶𝑃𝐼 𝑖𝑠 𝑠𝑡𝑎𝑡𝑖𝑜𝑛𝑎𝑟𝑦)
We have P-value = 0.0000 < 0.05, => Reject 𝐻0 => CPI is stationary at level
In Eview, choose view → Correlogram Specification → 1st different & lags to 24
Table 3-15. Correlogram Specification of CPI
From the above result, we choose p = 4 and q = 3
Type the following command ls d(cpi) c ar(4) ar(3)
22
Table 3-16. Seasonal ARIMA model result

 Stable and invertible test:
- Look at above table, authors see that both Inverted AR Roots and Inverted MA
Roots are smaller than 1 => The model is stable
- White noise test: View → Residual diagnostics → Correlogram Q-statistics
- Result: p-value > 0.1 => No White noise
Table 3-17. Stable and invertible test result
23
Next we forecast from 2015M01 2016M01:
Figure 3-9. Forecasted result of CPI in Vietnam from January 2015 to January 2016
using ARIMA Method
Mean Abs. Percent Error = 0.380664 < 5%
using ARIMA Method
Graph using the command line cpip1 cpi
24
2016 using ARIMA Method
3.1.6.2. Non - Seasonal ARIMA model

From Data description, we can see that the data has seasonal factor
- Step 1: Extract Seasonal factor from the data
Proc → Seasonal Adjustment → Moving Average → Adjustment Method → Ratio to

moving average – Multiplicative → Factors: sr
- Step 2: Check the stationary of serie

Next we check to see if the non-seasonal series is stationary or not. In Eview, choose
view → Unit Root Test → Level & Intercept and obtain the following result:
Table 3-19. Unit Root Test result
25
𝐻0 : 𝛽 = 0 (𝐶𝑃𝐼 𝑖𝑠 𝑛𝑜𝑛 − 𝑠𝑡𝑎𝑡𝑖𝑜𝑛𝑎𝑟𝑦)

{
𝐻1 : 𝛽 ≠ 0 (𝐶𝑃𝐼 𝑖𝑠 𝑠𝑡𝑎𝑡𝑖𝑜𝑛𝑎𝑟𝑦)
We have P-value = 0.0000 < 0.05, => Reject 𝐻0 => CPI is stationary at level
Next we choose p and q. In Eview, choose view → Correlogram Specification → 1st
different & lags to 24
Table 3-20. Correlogram Specification of CPI
From the above result, we choose p = 1 and q = 2
Type the following command ls d(cpi) c ar(1) ar(2)
26
Table 3-21. Non-seasonal ARIMA model result

 Stable and invertible test:
- Look at above table, authors see that both Inverted AR Roots and Inverted MA
Roots are smaller than 1 => The model is stable
- White noise test: View → Residual diagnostics → Correlogram Q-statistics
- Result: p-value > 0.1 => No White noise
Table 3-22. Stable and invertible test result

27
Next we forecast from 2015M01 2016M01:
2016 using SARIMA Method
Mean Abs. Percent Error = 0.270523 < 5%
Type the following command genr cpip3 = cpip2*sr and obtain the following predicted
values:
using SARIMA Method
Graph using the command line cpip3 cpi
28
Figure 3-12. Forecasted result of CPI in Vietnam from January 2019 to June 2019
using SARIMA Method
29
CHAPTER 4: CONCLUSION AND RECOMMENDATIONS
Table 4-1. Predicts monthly CPI from January 2019 to June 2019 using different method
Single exponential Double exponential Holt exponential Winter exponential Analytics ARIMA models ARIMA model
Time
smoothing method smoothing method smoothing method smoothing method method without seasonal with seasonal
2019M01 100.1769 100.2995 99.84961 100.3472 100.0550 99.76073 99.90807
2019M02 100.1769 100.3026 99.82961 100.4272 100.3152 99.75677 99.97893
2019M03 100.1769 100.3057 99.80961 100.1070 100.2113 99.56976 99.73274
2019M04 100.1769 100.3087 99.78961 100.1671 100.1775 99.54326 99.70053
2019M05 100.1769 100.3118 99.76961 100.2271 100.2346 99.54455 99.76501
2019M06 100.1769 100.3149 99.74961 100.3472 100.3660 99.55733 99.86373
RMSE 0.318483 0.314324 0.333001 0.279173
MAPE 0.226791 0.380664 0.270523
Source: Author’s calculation using Eview
30
By using many methods, we can conclude that Analytics method is the most suitable
one to predict Vietnam CPI from January to June 2019 because it provide result with the
smallest RMSE/MAPE (0.226791). Predicted values of Vietnam monthly CPI have a
tendency to fluctuate but will increase in general in the next 6 months, with detail as in
the following table:
Table 4-2. Predicted CPI from January 2019 to June 2019 using Analytics method
Time CPI
2019M01 100.0550
2019M02 100.3152
2019M03 100.2113
2019M04 100.1775
2019M05 100.2346
2019M06 100.3660
Source: Author’s calculation using Eview
A high CPI can indicate a risk of high inflation. Economists have warned of a
continued risk of high inflation if nothing is done to control the consumption price index
(CPI). There are a number of recommendations to Vietnam government to stabilize CPI:
First, the government needs to control price level and its closely-related factors such
as gold price, exchange rate. For example, the State Bank must reduce the difference
between domestic and gold prices in the world to reduce speculators having to buy USD
to import gold to avoid affecting the exchange rate.
Second, Vietnam needs to attract more foreign currency from other sources,
especially FDI, ODA, remittances, foreign visitors to Vietnam. This measure helps
stabilize the exchange rate while improving the balance of payments, increasing foreign
exchange reserves.
In addition, Vietnam should use more monetary tools to check the upswing in prices.
Raising of the compulsory reserve ratio, for example, would have a direct impact on the
credit market, serving as a tool for tightening monetary policy as it helps reduce the
volume of cash on circulation.
Another example is that keep the difference between deposit interest rates between
VND and USD large enough to increase the attractiveness of VND and increase the
31
conversion from USD to VND. At the same time, the State Bank can inject USD liquidity
into the interbank market to intervene when necessary, requiring commercial banks and
export enterprises to increase the USD supply to the market.
We would also want to suggest that Vietnamese government cut back on their public
spending in order to lower inflation rate.
REFERENCE
General statistics office of Vietnam (2020). Monthly consumer price index. [online].
Available at: https://www.gso.gov.vn/default.aspx?tabid=720 [Accessed 22 May
2020].
Nguyen, Q. and Nguyen, T., (2013). Giáo trình Kinh tế lượng. 2nd ed. National
Economy University Publishing.
Gujarati, D.N. and Porter, D.C. (2017). Basic econometrics. Usa: Mcgraw-Hill/Irwin.
Greene, W.H. (2018). Econometric Analysis. Harlow: Pearson Education Limited.
Jackson, E.A. (2018). Comparison between Static and Dynamic Forecast in

Autoregressive Integrated Moving Average for Seasonally Adjusted Headline
Consumer Price Index. SSRN Electronic Journal.
Sanson, N. (2015). Forecasting the consumer price index of Ghana using exponential
smoothing methods. (2019). Mathematical Theory and Modeling.
Clements, M., & Galvão, A. (2008). Macroeconomic forecasting with mixed-frequency

data: Forecasting output growth in the United States. Journal of Business &
Economic Statistics, 26, 546–554.
32
Ingenito, R., & Trehan, B. (1996). Using monthly data to predict quarterly output.
Federal Reserve Bank of San Francisco Economic Review, 3, 3–11.
Koenig, E., Dolmas, S., & Piger, J. (2003). The use and abuse of real-time data in
economic forecasting. Review of Economics and Statistics, 85(3), 618–628.
33

Group 9 - Mid - Term Assignment

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FOREIGN TRADE UNIVERSITY

FACULTY OF INTERNATIONAL ECONOMICS

ECONOMICS FORECAST REPORT

Lecturer : PhD. Chu Thị Mai Phương

Hanoi, May 2020

Table 3-1. Result of the Single Exponential Smoothing Method .............................. 9

Figure 2-1.Summarization of VNIndex data............................................................... 7

CHAPTER 2: METHODOLOGY AND DATA DESCRIPTION

2.1. Exponential Smoothing Method

Ft = Ft-1 + α(At-1 - Ft-1) with 0 < α < 1

2.1.2. Double Exponential Smoothing Method

- Formula of double exponential smoothing method:

Such that 𝒆𝟐𝒕 = ∑𝒏𝒕=𝟐(𝑭𝒕 − 𝒀𝑫𝑬 𝟐

2.1.3. The Holt exponential smoothing method:

The Holt equation is written as follow:

 Estimated current average value: Ft = α At + (1- α)(Ft -1+ Tt-1)

- α = Exponential constant (0 < α < 1)

2.1.4. The Winter Exponential Smoothing Method:

The Winter's equation:

*Estimate the current average value:

 The multiplication model: Ft = α.At/St-p + (1- α) (Ft-1 + Tt-1)

*Estimate the trend value:

Tt = β(Ft – Ft-1) + (1-β)Tt-1

*Estimate the value of the trend indicator:

 The multiplication model: St = γAt/Ft + (1-γ) St-p

*Forecast for h periods in the future:

 The multiplication model: Ft+h = (Ft + hTt) St+h-p

2.2. Forecast by Analysis Method

- Step 1: Data identification

Adjust the seasonal factor by the MA ratio

𝒀𝒕 𝒀(𝟏)𝟑 𝒀(𝟏)𝟒 𝒀(𝒎)𝟐

+ Calculate the average ratio for each quarter / month.

+ Estimating the trend function.

· Omitted variables test

· Test of variance of error of change

· The standard distribution of noise test

+ Forecast in the sample

+ The adjusted series value is:

 The multiplication model: Yf = . SR

- Step 1: Check the stationary of serie

Figure 2-1.Summarization of VNIndex data

Source: Author’s calculation using Eviews

Source: Author’s calculation using Eviews

We can see that the data has seasonal factor.

CHAPTER 3: FORECAST PROCESS AND RESULT

3.1. Exponential Smoothing Method

3.1.1. Single Exponential Smoothing Method

In Stata, we use the following steps:

The result are as follow:

Source: Author’s calculation using Eviews

We have: α = 0.0070 and RMSE = 0.318483

Source: Author’s calculation using Eviews

 We run the following command: line cpi cpism

Source: Author’s calculation using Eviews

3.1.2. Double Exponential Smoothing

In Stata, we use the following steps:

 Proc=>Exponential smoothing => Simple exponential smoothing => Double

Table 3-3. The result of Double Exponential Smoothing

Source: Author’s calculation using Eviews

Source: Author’s calculation using Eviews

We run the following command: line cpi cpism

Source: Author’s calculation using Eviews

In Stata, we use the following steps: