Agriculture Price Forecasting with Structural Break in Time Series Data
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Date
2020
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Publisher
ICAR-Indian Agricultural Statistics Research Institute ICAR-Indian Agricultural Research Institute New Delhi-
Abstract
Accurate price forecasting of agricultural commodities is very important for raising income
of the farmers as well as for avoiding market risk. However, due to biological nature of
production of agricultural commodities, forecasting of their prices become a challenging
task. These challenges become more severe when structural breaks are present in the
observed agricultural price series due to factors like major changes in technology, sudden
changes in economic policy, etc. In this study, an effort has been made to account for the
structural break along with the other complex patterns like non-stationarity, non-linearity,
long memory and cointegration present in the agricultural price series.. Generally, single
model may not be able to capture all complex patterns present in the data series
concurrently. Therefore, to capture various complex patterns in the data along with
structural break, hybridization of statistical model that account for structural break with
artificial intelligence model has been done. Accordingly, for agricultural price volatility
forecasting in the presence of structural break, a hybrid model based on Markov-Switching
GARCH (MS-GARCH) and Extreme Learning Machine (ELM) is proposed. The
performance of the proposed hybrid MS-GARCH–ELM model is evaluated on the weekly
potato price of Delhi market, monthly international Groundnut oil and Palm oil price series,
and it is found that the proposed model outperformed its counterparts. Empirical results of
agricultural price series that contain long memory property with structural break show that
the forecasting performance of the proposed hybrid model based on ARFIMA with dummy
variable combined with ELM is better than the individual model. Further, the effect of
structural break in the co-integrated system has also been evaluated. Accordingly, spatial
market integration among major Potato markets in India are investigated in the absence
and presence of structural break. The overall co-integration test results indicated that
selected potato markets in India are well integrated and have long-run price association
across them.
Description
T-10380