RBI economists suggest new machine learning methods for inflation forecasting
RBI). They suggest newer supervised and advanced machine learning (ML) techniques.
In the paper titled ‘Inflation Forecasting in India: Are ML techniques useful’, authors argue that ML techniques outperformed traditional mathematical models for both the pre-pandemic and post-pandemic periods.
These advanced machine learning algorithms have performed better at capturing the volatility of inflation during the pandemic. Machine learning is a branch of artificial intelligence (AI) that uses data to imitate a pattern and eventually predict an outcome.
Traditional models can’t capture the non liner and changing relations.
And in atypical times like the pandemic, it is not wise to rely on forecasts based only on historical trends.
From the wide array of available ML techniques, the paper suggests only deep learning techniques like artificial neural network and recurrent neural network-long short-term memory. “Deep learning tends to be the most accurate but least interpretable.
