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Forecasting a Composite Indicator of Economic Activity in Ghana: A Comparison of Data Science Methods

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  • Emmanuel Thompson
  • Ahmad M. Talafha

Abstract

Of recent, data science methods have been used to study and forecast financial and economic problems. This paper uses historical data to build a more parsimonious predictive model for making short term forecasts of the future values for the Composite Indicator of Economic Activity (CIEA) in Ghana. Based on our studies of a variety of shrinkage methods and a dimension reduction technique, we show empirically that the estimated model based on the Adaptive Elastic Net (Adaptive ENET) algorithm offers the greatest forecasting potential for the CIEA. A major finding in this paper was that, the Adaptive ENET model outperformed the benchmark model: Principal Component Regression (PCR) according to the cross validation root mean square error difference Statistic.Mathematics Subject Classification: G12; C15; G22Keywords: Composite Index of Economic Activity; Least Absolute Shrinkage and Selection Operator; Elastic Net; Principal Component; Artificial Neural Network

Suggested Citation

  • Emmanuel Thompson & Ahmad M. Talafha, 2017. "Forecasting a Composite Indicator of Economic Activity in Ghana: A Comparison of Data Science Methods," Journal of Statistical and Econometric Methods, SCIENPRESS Ltd, vol. 6(4), pages 1-2.
    • Handle: RePEc:spt:stecon:v:6:y:2017:i:4:f:6_4_2
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    References listed on IDEAS

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    1. David E. Rapach & Jack K. Strauss & Guofu Zhou, 2010. "Out-of-Sample Equity Premium Prediction: Combination Forecasts and Links to the Real Economy," The Review of Financial Studies, Society for Financial Studies, vol. 23(2), pages 821-862, February.
    2. Bai, Jushan & Ng, Serena, 2008. "Large Dimensional Factor Analysis," Foundations and Trends(R) in Econometrics, now publishers, vol. 3(2), pages 89-163, June.
    3. Stock J.H. & Watson M.W., 2002. "Forecasting Using Principal Components From a Large Number of Predictors," Journal of the American Statistical Association, American Statistical Association, vol. 97, pages 1167-1179, December.
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    1. Boateng, Ebenezer & Asafo-Adjei, Emmanuel & Addison, Alex & Quaicoe, Serebour & Yusuf, Mawusi Ayisat & Abeka, Mac Junior & Adam, Anokye M., 2022. "Interconnectedness among commodities, the real sector of Ghana and external shocks," Resources Policy, Elsevier, vol. 75(C).

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