Mathematical Development and Evaluation of Forecasting Models for Accuracy of Inflation in Developing Countries: A Case of Vietnam

Hindawi Publishing Corporation Discrete Dynamics in Nature and Society Volume 2015, Article ID 858157, 14 pages http://dx.doi.org/10.1155/2015/858157 Research Article Mathematical Development and Evaluation of Forecasting Models for Accuracy of Inflation in Developing Countries: A Case of Vietnam Nhu-Ty Nguyen and Thanh-Tuyen Tran International Relations Office, Lac Hong University, No. 10 Huynh Van Nghe Street, Bien Hoa, Dong Nai 71000, Vietnam Correspondence should be addressed to Nhu-Ty Nguyen; Received 26 September 2014; Accepted 9 February 2015 Academic Editor: Ufuk Yolcu Copyright © 2015 N.-T. Nguyen and T.-T. Tran. This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. Inflation is a key element of a national economy, and it is also a prominent and important issue influencing the whole economy in terms of marketing. This is a complex problem requiring a large investment of time and wisdom to attain positive results. Thus, appropriate tools for forecasting inflation variables are crucial significant for policy making. In this study, both clarified value calculation and use of a genetic algorithm to find the optimal parameters are adopted simultaneously to construct improved models: ARIMA, GM(1,1), Verhulst, DGM(1,1), and DGM(2,1) by using data of Vietnamese inflation output from January 2005 to November 2013. The MAPE, MSE, RMSE, and MAD are four criteria with which the various forecasting models results are compared. Moreover, to see whether differences exist, Friedman and Wilcoxon tests are applied. Both in-sample and out-of-sample forecast performance results show that the ARIMA model has highly accurate forecasting in Raw Materials Price (RMP) and Gold Price (GP), whereas, the calculated results of GM(1,1) and DGM(1,1) are suitable to forecast Consumer Price Index (CPI). Therefore, the ARIMA, GM(1,1), and DGM(1,1) can handle the forecast accuracy of the issue, and they are suitable in modeling and forecasting of inflation in the case of Vietnam. 1. Introduction Vietnam is in the process of socioeconomic development and integration into the world economy, so Vietnam would have more investment opportunities and economic development to boost exports of goods and new intrusion economy globally. Besides, Vietnam has to face many challenges in open economy like today, especially the stiff competition in the business world. However, according to the recent report, Vietnam Report (Q3-2013), in the third quarter of 2013, growth continued and increased at 5.54% approximately, which brought Gross Domestic Product (GDP) to 5.14% higher in the first 9 months of 2013 than the same period of 2012. Fourth-quarter GDP forecasted to grow at 6% in aggregate demand because the economy will be more positive changes in light of the seasonal nature and impact of the policy lag (about 9 months) in the last months. Thus, the annual growth forecast is somewhat better than the original forecast of Financial Supervisory Commission countries (5.3%). Some macroeconomic indicators have moved the more positive signs in January as production, exports, inflation, and Foreign Direct Investment (FDI) [1]. FDI Inflows, Positive and Aggressive Capital Structure. As of October, 2013, FDI attracted over $19 billion, an increase of 65.6% and the realized FDI reached 9.58 billion USD, up to 6.4%. Fields of industrial production, manufacturing and processing, and electronics are still the most attractive field; which means these fields accounted for 86.4% of the total capital during 9 months that also means they got two-time growth over the same period to help Vietnam improve longterm production capacity and develop ancillary industries (GSO-VN). In the first 10 months of the year, exports continued to grow (up to 15.2%), being the lowest deficit in recent years ($187 million deficit). In particular, FDI remains as the mainstay of exports and accounted for 61.3% of total exports (up to 27.2% compared to the same time of the previous 2 Discrete Dynamics in Nature and Society Export 50 Import 60 40 40 30 20 20 0 10 0 2010 2011 2012 10M/2013 −20 Domestic economic sector FDI economic sector 2010 2011 2012 10M/2013 Domestic economic sector FDI economic sector Figure 1: Growth rate of export and import activities (%) (source: General Statistics Office of Vietnam (GSO-VN)). CPI 8.0 7.5 7.0 (%) 7.07% 7.02% 6.61% 6.69% 6.5 6.64% 6.0 7.29% 7.50% 6.30% 6.36% 5.92% 5.5 5.78% Nov-13 Oct-13 Sep-13 Aug-13 Jul-13 Jun-13 May-13 Apr-13 Mar-13 Feb-13 5.0 Jan-13 year). Meanwhile, due to the impact of domestic policies, import and export activities of the business sectors, rather than FDI, in the country have declined since 2011 (Figure 1). The trend is somewhat improved in 2013 compared with 2012 when the export operations and import of this area have turned up to 3% and 3.5% over the same period. Import growth group for production materials and machinery for production also increased significantly showing promising recovery in brighter domestic production. However, in the marketing economy, the most prominent and important issue influencing the whole economy is inflation. This is a complex problem requiring a large investment of time and wisdom to attain positive results of study. Therefore, fighting inflation is not only the task of government but also the task of all people and businesses [2]. Inflation affects the entire national economy and society, especially workers. Monthly inflation tends to rise since June, peaking in the first two months of quarter 3, 2013 (at 7.29% and 7.5% in July and August, resp.). By the mean time, CPI of the months is mainly influenced by the seasonal adjustment (cost of goods and services by state management) rather than the fundamentals of inflation; in particular, aggregate demand is still low (Figure 2). In November, 2013, compared with the same period, inflation fell to its lowest level since 2010 (5.78%), but inflation is still in its trend. In quarter 4, 2013, factor analysis indicates that this cycle is the quarter holding the highest growth rate in the year, but the demand is still weak. Thus, this would substantially limit price increasing in the coming months. The main factors causing price increases in the quarter include increased food and catering services and the demand for the seasonal shopping months, Tet Holiday (Traditional Vietnamese Lunar New Year). Thus, this research topic is to contribute a small part of studying in order to find and control inflation and to maintain stable development of the economy as mentioned above. Moreover, the inflation of Vietnam in recent years is the main subject in this study by collecting data from 2005 to November, 2013. The research tries to figure out the problems around Vietnamese inflation, apply forecasting methods to find (...truncated)