atchirume/factor-augmented-inflation-forecasting

Central bank-grade factor-augmented inflation nowcasting and forecasting framework for Zimbabwe. Combines PCA-based macroeconomic factor extraction, machine learning models (Elastic Net, Random Forest, SVR, XGBoost), scenario analysis, and inflation regime classification aligned to SADC targets. # Factor-Augmented Inflation Forecasting Framework A central bank–grade inflation nowcasting and forecasting system developed by **Chirume Admire Tarisirayi**. This framework integrates advanced econometric modelling, machine learning, and macroeconomic factor analysis to produce robust, policy-relevant inflation forecasts for Zimbabwe and comparable economies. ## Key Features - **PCA-Based Factor Extraction** Dimensionality reduction of macroeconomic indicators into interpretable economic factors. - **Multi-Model Forecasting Engine** Combines Elastic Net, Random Forest, Support Vector Regression (SVR), and XGBoost for enhanced predictive accuracy. - **Inflation Nowcasting** Incorporates high-frequency indicators to estimate current-period inflation dynamics. - **Scenario Analysis Engine** Simulates policy and external shocks (exchange rate, liquidity, fiscal impulse) and evaluates their impact on inflation. - **Regime Classification Framework** Classifies inflation into regimes aligned with SADC macroeconomic convergence targets. - **Interactive Dashboard (Streamlit)** Real-time visualisation of forecasts, factor contributions, and risk scenarios. ## Live Application factor-augmented-inflation-… ## Methodological Framework The system is based on a **Factor-Augmented Model**, where inflation is driven by latent macroeconomic factors derived from observable indicators: \[ \pi_t = \alpha + \beta F_t + \varepsilon_t \] Where: - \( \pi_t \): Inflation - \( F_t \): Extracted macroeconomic factors (via PCA) - \( \beta \): Factor loadings - \( \varepsilon_t \): Error term ## Applications - Central banks and monetary authorities - National statistical agencies - Economic research institutions - Financial sector risk and policy analysis ## Author **Admire Tarisirayi Chirume** Director of Macroeconomic Statistics Economist | Data Scientist | Data Engineer| Developer ## Keywords Inflation Forecasting • Nowcas …