INTER-REGIONAL MODELS OF INFLATION RATES IN NIGERIA USING UNOBSERVED COMPONENT MODEL
Keywords:
(Generalized Autoregressive Conditional Heteroskedasticity), Arima (Auto-Regressive Integrated Moving Average),, Sarima (Seasonal Autoregressive Integrated Moving Average), Ucm (Unobserved Component Model), Inflation Rate, Inter-RegionalAbstract
this research investigates inter-regional inflation rates in Nigeria using an Unobserved Component Model (UCM). The study aims to analyze the differences in inflationary trends across Nigeria’s six geopolitical zones and assess the effectiveness of UCM in comparison to ARIMA and GARCH models. The findings indicate that while inflation rates show signs of stabilization, regional disparities persist, influenced by economic activities, demand patterns, and policy impacts. It provides descriptive statistics, trend comparisons, and model evaluation results. The study highlights variations in inflation rates across different regions, with the South West showing the highest average inflation trend (18.2%) and the North East the lowest (16.9%). Data visualization techniques, including time series decomposition and inter-regional trend comparisons, were employed to understand inflation dynamics. It also discusses the effectiveness of various forecasting models, concluding that the Unobserved Component Model (Ucm) provides the best fit for explaining inflationary trends across different geopolitical zones. The study highlights the significance of using UCM for inflation modeling due to its superior ability to capture seasonal variations and stochastic trends. The results provide valuable insights for policymakers in designing targeted economic interventions to manage inflation more effectively across different regions of Nigeria
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