Abstract:
This thesis models Liberia’s Inflation rates using the Box-Jenkins Methodology. It was
modeled using seasonal autoregressive integrated moving average which extends the
ARIMA model to capture seasonality. The monthly inflation data spanning the period
January 2006, to December 2013 from the Research Department of the Central Bank
of Liberia was used in this study. It is important to understand the pattern of inflation
in a country in order to formulate better policies that will control inflation rates.The
Hyndman-Khandakar algorithm selected ARIMA (0;1;0)(2;0;0)12 as the best model
for Liberia inflation series. Further residual analysis such as Autoregrssive Conditional
Heteroscedsaticity Lagrange Multiplier test and Li-Jung Box test show 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 forecast result, it is 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 are met.
