Modeling the Inflation Rates in Liberia SARIMA Approach

Inflation measures the relative changes in the prices of commodities and services over a period of time. It is necessary to know the pattern of inflation in the country in order to formulate better policies that will control the inflation rates. In this paper, we used Box ? Jenkins methodology to build an ARIMA model for Liberia’s monthly inflation rates for the period January 2006 to December 2013 with a total of Ninety Six (96) data points. The result showed that ARIMA model was appropriate for modelling the inflation rates. ARCH-LM test and Ljung-box test performed on the residuals showed no evidence of ARCH effect and serial correlation respectively. Lastly, a 12 months forecast for the year 2013 with the model revealed that Liberia is likely to experience single digit inflation values. In glow of the forecasted result, we recommend that vigorous monetary policies and appropriate economic measure be adopted by government and some policy makers to make certain that the single digit inflation values aim is met.