Forecasting Major Macroeconomic Variables of the Indian Economy

Abstract

A major concern for policymakers and researchers is to ascertain the movement of price levels and employment rates. Predicting the trends of these variables will assist the government in making policies to stabilize the economy. The objective of this chapter is to forecast the unemployment rate and Consumer Price Index (CPI) for the period 2022 to 2031 for the Indian economy. For this purpose, the authors analyse the prediction capability of the univariate auto-regressive integrated moving average (ARIMA) model and the vector autoregressive (VAR) model. The dataset for India's annual CPI and unemployment rate pertains to a 30-year time period from 1991 to 2021. The result shows that the inflation forecasts derived from the ARIMA model are more precise than that of the VAR model. Whereas, unemployment rate forecasts obtained from the VAR model are more reliable than that of the ARIMA model. It is also observed that predicted unemployment rates hover around 5.7% in the forthcoming years, while the forecasted inflation rate witnesses an increasing trend.

Citation

Advani, B., Sachan, A., Sahu, U.K. and Pradhan, A.K. (2024), "Forecasting Major Macroeconomic Variables of the Indian Economy", Sergi, B.S., Tiwari, A.K. and Nasreen, S. (Ed.) Modeling Economic Growth in Contemporary India (Entrepreneurship and Global Economic Growth), Emerald Publishing Limited, Leeds, pp. 1-24. https://doi.org/10.1108/978-1-80382-751-320241001