Local polynomial estimator in the nonparametric model of inflation in Indonesia

Aziz, Abdul, Chamidah, Nur and Saifudin, Toha (2025) Local polynomial estimator in the nonparametric model of inflation in Indonesia. Cauchy: Jurnal Matematika Murni dan Aplikasi, 10 (1). pp. 1-9. ISSN 2477-3344

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Abstract

Inflation is a general and continuous increase in prices of goods and services over a certain period. Nonparametric regression analysis can be used to model inflation data that does not form a particular pattern. This study applies a local polynomial nonparametric method to model the rate of change rate in the inflation over a period considering two factors influencing inflation: the rate of change in the BI interest rate and the rate of change rate in the money supply from the previous period. The bivariate local polynomial method estimates the nonparametric regression function by considering the optimum Gaussian kernel bandwidth and polynomial order using the Taylor series expansion and WLS estimator. The optimal local polynomial nonparametric regression model was obtained based on a minimum GCV value of 0.015108 with two optimum Gaussian kernel bandwidth values of 0.1 and 0.03 in polynomial order of 1. The best model had a MAPE value of 3.45%, showing that all the prediction models were highly accurate. The benefits gained are additional information and consideration for determining monetary policy, especially inflation in Indonesia, by determining the BI interest rate and money supply.

Item Type:	Journal Article
Keywords:	BI interest rate; inflation; local polynomial; money supply; nonparametric regression
Subjects:	01 MATHEMATICAL SCIENCES > 0102 Applied Mathematics > 010205 Financial Mathematics 01 MATHEMATICAL SCIENCES > 0104 Statistics > 010401 Applied Statistics 14 ECONOMICS > 1401 Economic Theory > 140102 Macroeconomic Theory 14 ECONOMICS > 1402 Applied Economics > 140207 Financial Economics 14 ECONOMICS > 1402 Applied Economics > 140212 Macroeconomics (incl. Monetary and Fiscal Theory) 14 ECONOMICS > 1403 Econometrics > 140302 Econometric and Statistical Methods 14 ECONOMICS > 1403 Econometrics > 140303 Economic Models and Forecasting 14 ECONOMICS > 1403 Econometrics > 140305 Time-Series Analysis 14 ECONOMICS > 1401 Economic Theory 14 ECONOMICS > 1403 Econometrics
Divisions:	Faculty of Mathematics and Sciences > Department of Mathematics
Depositing User:	Mr. Abdul Aziz
Date Deposited:	12 Jun 2025 15:14

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