The research area that Iwould like to focus on is developing a new inflation forecastingmodel for the Kyrgyz Republic, which will allow make projection for the mediumterm (one to three years). The Ministry of Economy ofthe Kyrgyz Republic, as of 2018, has had experience in inflation forecasting;however, the currently used models have limitation and gap, which the newforecasting model will fill. Forecasting is about predicting the futureas accurately as possible, given all the in- formation available, includinghistorical data and knowledge of any future events that might impact theforecasts.
My goal is to predictfuture values of inflation devoting more attention to find realistic values. Recent studies, such asthose by Raftery, Karny & Ettler, (2010), McCormick, Raftery, Madigan & Burd (2013), suggest relying on DynamicModel Averaging (DMA) and a dynamic extension of Bayesian Model Averaging (BMA). It is common practice tocompare two or three potential competing forecasting models. Each model isitself an artificial construct that is based on a set of assumptions (explicitand implicit) and usually involves one or more parameters which have to be estimated.The Kyrgyz Republic is a ‘price-taker’ country, and moreoveris an open small economy, and therefore commodity price shocks, foreigninterest rate, global economic activity shocks are important and will play amajor role in forecasting exercises. Reasonable and predictable degree of prices is a key driversfor development.This model would greatlyassist the Ministry in the improvement of inflation forecasting and analyzing.A new forecasting framework will provide historical decomposition: estimatingshocks, forecasting and analysis policies.
The study will use quarterlydata from the publications published by the National Statistical Committee ofthe Kyrgyz Republic such as “Social economic situation,” “National accounts ofthe Kyrgyz Republic,” “Consumer price indices for goods” and Bulletin of theNational Bank of the Kyrgyz Republic. The above mentioned monthly data will beobtained from 1995 to 2017.The process of economic forecasting is one of the keytools of macroeconomic management. Improvementsin macroeconomic forecasting usually enhance long-term economic development, therefore,the expected results from this research is a new inflation forecasting tool forthe government of the Kyrgyz Republic.