Spatial Vector Autoregressive with Metric Exogenous Variable (SpVARX) for Inflation and Outflow Forecasting

Abstract

Forecasting inflation and outflow is very important for the government to make price control policies. We propose SpVARX be applied to inflation and outflow forecasting. SpVARX can simultaneously accommodate interrelationships between variables, the influence of metric exogenous variables, and spatial aspects. Our study shows SpVARX has better forecasting performance than SpVAR, as most of SpVARX's Root Mean Square Errors (RMSEs) are smaller than SpVAR's. Based on the forecast, the highest inflation in Semarang and Solo will occur in November 2023, while the highest inflation in Yogyakarta will occur in December 2023. The highest outflow forecast for all these cities is in April 2023.