Design of Arimax Model to Examine the Impact of Inflation Rate and Unemployment Rate on Poverty Level in Nigeria

Abstract

In this study, Autoregressive integrated moving average with exogeneous variables (ARIMAX) model was used to investigate the impact of inflation rate and unemployment rate on poverty level in Nigeria. These variables were subjected to the usual model building steps in linear time series. The Kwiatkowski, Philips, Schmidt and Schin (KPSS) test was used to test the variables for stationarity. Differencing technique was used to obtain stationarities for the non – stationary series. Then, several ARIMAX models were built to identifiy the best model. The result showed that ARMAX (2,0) fitted the series best and was used to generated forecasts for the next five years. Its shows a decrease in poverty level for the years 2022, 2023 and 2024 then a slightly increase for the year 2025. A comparative analysis was carried out with Peter et al (2016) which applied vector Autoregressive model of order 2 to the aforementioned variables. The result further confirmed that ARMAX (2.0) performed best.