Forecasting the barbados money supply

Abstract

The purpose of this paper is to provide an adequate forecasting method for the money supply in the Barbadian economy. This would assist the Central Bank in making decisions on monetary intervention. The performance of ARIMA and vector autoregressive forecasting models are investigated along with combinations of these models. The results of this study suggest that there are reasonable options available for obtaining reliable forecasts of the Barbados money supply. Our findings indicate that seasonal factors and interest rate effects should be comprehended within the forecasting model. We accomplished this through a combination forecasting procedure in which seasonal effects are captured by an ARIMA model and interest rates are introduced through a vector autoregressive forecasting model as exogenous variables.