Forecasting Economic Growth and inflation in Vietnam: A comparison between the VAR model, the lasso model, and the multi- layer perceptron model

Abstract

Economic growth and inflation are two critical indicators of any economy in the world. Because of the importance of these two indicators to the economics, the forecast of economic growth and inflation has become an important issue and always has been paid attention from the national governments. This paper aimed to provide a comparison between economic growth and inflation by common current methods. Specifically, the forecasting model of economic growth and inflation is developed and estimated through 3 models: VAR. LASSO, and MLP. Given the data obtained in the period from 1996 to 2020, the empirical results show that according to all three Indicators, RMSE, MAPE, and MSE. the forecasting model of economic growth by LASSO model is the most accurate while the forecasting model of inflation by VAR model is the most accurate. Even though the MLP model has not shown high predictive efficiency in this paper, it is still a productive tool of the future because it describes the nonlinear relationships between variables in the model and can visually map these nonlinear relationships.