Modeling And Forecasting Cereal Price In Ethiopia An Application Of Arima And Garch Models

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Cereal production and marketing constitute the sing le largest sub- sector in Ethiopian eco nomy. Itrnacco unts fo r ro ughly 60 percent of rural emp loyment, 73% of total culti vated land and 68.3% ofrntotal o utput, 46 percent of a typ ical ho usehold's food expenditure more than 60% of caloric/rnintake. According to ava ilable est imates, cereals production represe nts about 30 percent of grossrndomestic product (GOP). In this study we attempted to model cereal price and obtain forecasts atrnnat io nal leve l. The data used are mo nt hly cereal price obtained from the Centra l Stat isticalrnAgency (CSA) fo r the periods from September 1996 to July 201 2.rnSeasonal ARIMA and GARCH were employed to ana lyze the mo nthly cerea l price data. It wasrnfound that the Seasona l ARlMA(O, I, I)*(O, I, I) and ARMA(2, 1)-GARCH(I , I) were adequaternmodels for the data considered in this stud y. In the GARCH mode l, the va lue of the GARCHrnterm for the return of cereal price is close to one indicating slow convergence of vo latility to arnsteady state and high persistence in vo latility. In additio n, the constant term in the mean equationrnwas significant and thus it fo llows an ARMA (2, I) model. The po int forecast results showed arnvery clo ser match with the pattern of the actual data and better forecasting accuracy in validationrnperiod. Almost all the in-sample forecast eva luations statistic indicated that the Seaso nal ARIMArnmode l is better in comparison to GARCH Model. However, almost all the out -sample forecastrneva luation stati stic shows the superiorit y of GARCH ( I, I) mode l over the Seaso nal ARIMArnmodel.

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Modeling And Forecasting Cereal Price In Ethiopia An Application Of Arima And Garch Models

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