Machine Learning vs. Econometric Models to Forecast Inflation Rate in Romania? The Role of Sentiment Analysis
Given the high inflationary pressure in Romania, the aim of this paper is to demonstrate the potential of autoregressive distributed lag (ARDL) models incorporating sentiment analysis to provide better inflation forecasts compared to machine learning (ML) techniques. Sentiment analysis based on Nati...
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MDPI AG
2025-01-01
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| author | Mihaela Simionescu |
| author_facet | Mihaela Simionescu |
| author_sort | Mihaela Simionescu |
| collection | DOAJ |
| description | Given the high inflationary pressure in Romania, the aim of this paper is to demonstrate the potential of autoregressive distributed lag (ARDL) models incorporating sentiment analysis to provide better inflation forecasts compared to machine learning (ML) techniques. Sentiment analysis based on National Bank of Romania reports on quarterly inflation may provide valuable inputs for econometric models. The ARDL model, utilizing inflation and sentiment index data from the previous period, outperformed the proposed seasonal autoregressive integrated moving average (SARIMA) model and the ML techniques (support vector machine and artificial neural networks). The forecasts based on the ARDL model predicted correctly all the changes in inflation, while accuracy measures (mean error, mean absolute error, root squared mean error) in the short-run 2023: Q1–2024: Q3 indicated the most accurate predictions. The more accurate forecasts are essential for national banks, companies, policymakers, and households. |
| format | Article |
| id | doaj-art-4147070336ae42adbe9e2e03c7e6d902 |
| institution | Kabale University |
| issn | 2227-7390 |
| language | English |
| publishDate | 2025-01-01 |
| publisher | MDPI AG |
| record_format | Article |
| series | Mathematics |
| spelling | doaj-art-4147070336ae42adbe9e2e03c7e6d9022025-01-10T13:18:29ZengMDPI AGMathematics2227-73902025-01-0113116810.3390/math13010168Machine Learning vs. Econometric Models to Forecast Inflation Rate in Romania? The Role of Sentiment AnalysisMihaela Simionescu0Faculty of Business and Administration, University of Bucharest, 4-12, Blvd. Regina Elisabeta, 030108 Bucharest, RomaniaGiven the high inflationary pressure in Romania, the aim of this paper is to demonstrate the potential of autoregressive distributed lag (ARDL) models incorporating sentiment analysis to provide better inflation forecasts compared to machine learning (ML) techniques. Sentiment analysis based on National Bank of Romania reports on quarterly inflation may provide valuable inputs for econometric models. The ARDL model, utilizing inflation and sentiment index data from the previous period, outperformed the proposed seasonal autoregressive integrated moving average (SARIMA) model and the ML techniques (support vector machine and artificial neural networks). The forecasts based on the ARDL model predicted correctly all the changes in inflation, while accuracy measures (mean error, mean absolute error, root squared mean error) in the short-run 2023: Q1–2024: Q3 indicated the most accurate predictions. The more accurate forecasts are essential for national banks, companies, policymakers, and households.https://www.mdpi.com/2227-7390/13/1/168inflationmachine learningeconometric modelsentiment analysis |
| spellingShingle | Mihaela Simionescu Machine Learning vs. Econometric Models to Forecast Inflation Rate in Romania? The Role of Sentiment Analysis Mathematics inflation machine learning econometric model sentiment analysis |
| title | Machine Learning vs. Econometric Models to Forecast Inflation Rate in Romania? The Role of Sentiment Analysis |
| title_full | Machine Learning vs. Econometric Models to Forecast Inflation Rate in Romania? The Role of Sentiment Analysis |
| title_fullStr | Machine Learning vs. Econometric Models to Forecast Inflation Rate in Romania? The Role of Sentiment Analysis |
| title_full_unstemmed | Machine Learning vs. Econometric Models to Forecast Inflation Rate in Romania? The Role of Sentiment Analysis |
| title_short | Machine Learning vs. Econometric Models to Forecast Inflation Rate in Romania? The Role of Sentiment Analysis |
| title_sort | machine learning vs econometric models to forecast inflation rate in romania the role of sentiment analysis |
| topic | inflation machine learning econometric model sentiment analysis |
| url | https://www.mdpi.com/2227-7390/13/1/168 |
| work_keys_str_mv | AT mihaelasimionescu machinelearningvseconometricmodelstoforecastinflationrateinromaniatheroleofsentimentanalysis |