On the Analysis and Modelling of the Harmonized Consumer Price Indices of West African Economic and Monetary Union Member States

The major goal of this paper is a better understanding of the price dynamics of the eight West African Economic and Monetary Union (WAEMU) member states. More specifically, the study intends to find the best models with suitable forecasting power for the monthly Harmonized Consumer Price Indices (HCPI) of each of the WAEMU countries. Descriptive statistics and time series modeling approaches were applied to the HCPI base 100=2008 series covering the period from January 1998 to December 2019. The analysis revealed that Guinea-Bissau had the highest average HCPI of 99.88 and Senegal the lowest of 93.73. Togo attained the highest HCPI of 119.60 and Benin the lowest of 71.54 over the period studied. The indices of Togo and Guinea-Bissau have the highest and the smallest variance of 225.56 and 79.60, respectively. All the indices have an upward trend and contain cyclical and seasonal components. Using the Box-Jenkins methodology and Expert Modeler of SPSS five types of outliers, i.e. additive, additive patch, transient, innovational and level change, have been detected and different SARIMA models were proposed. Bartlett's B-test detects significant periodic effects in the residuals of the models for Burkina-Faso and Cote d’Ivoire. The residuals of all the models have been declared Gaussian by Shapiro-Wilks and Jarque-Bera normality tests while those of Cote d’Ivoire fail the latest test for normality due to the discrepancy of their skewness with that of a normal distribution. Adequacy of the claimed models has been corroborated by adequate values of key fitting and predicting statistics and the non-significance of the paired t-test on the mean difference between the observed and the adjusted values. Thus SARIMA (0,1,0) (0,1,1)12 model was found to best fit the HCPI for Burkina Faso, Cote d'Ivoire, Niger, Senegal and Togo; and the data for Benin, Guinea Bissau and Mali are found to be SARIMA (3,1,0) (1,0,1)12, SARIMA (0,1,0) (1,0,1)12 and SARIMA (1,1,1) (0,1,1)12 process, respectively. The differences between the retained models raise doubts on the claimed objective of convergence of the economies of the WAEMU countries. Engle's Lagrange Multiplier test for autoregressive conditional heteroscedasticity (ARCH) reveals the homoscedasticity of the residuals of all the models but the one of Cote d'Ivoire. Thus, for better modeling of the index of Cote d’Ivoire, a GARCH model may be envisioned.