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IMF Country Report No. 22/101
JORDAN
TECHNICAL ASSISTANCE REPORT––FORECASTING FRAMEWORK FOR CURRENCY IN CIRCULATION
April 2022
This technical assistance report on Jordan was prepared by a staff team of the International Monetary Fund. Based on information available at the time of the mission, this technical assistance report was completed on March 8, 2022.
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Title page
TECHNICAL ASSISTANCE REPORT
JORDAN
Forecasting Framework for Currency in Circulation
MARCH 2022
Prepared By
Romain Lafarguette (Mission Chief), Arthur Charpentier (External Expert), Nikolaos Kourentzes (External Expert), and Kei Moriya (ITD)
Authoring Departments:
Monetary and Capital Markets Department
Information Technology Department
Contents
Preface
Executive Summary
I. Introduction
II. Forecasting Framework
III. Data Pre-Processing
IV. Modeling Seasonality and Special Events
V. First-Tier: Individual Forecasting Models
VI. Second-Tier: Model Evaluation, Selection, and Combination
VII. Results, Recommendations, and Conclusion
Figures
1. Currency Issued, with Imputed Values Highlighted
2. Currency in Circulation, with Imputed Values Highlighted
3. Seasonal Plots for the Three Seasonalities Present in the Time Series
4. Example of Full and Sparse Seasonal Encoding Using Binary and Trigonometric
5. Nemenyi Test Results for the Currency Issued Forecasts
6. Nemenyi Test Results for the Currency in Circulation Forecasts
7. A Forecast with its 80 percent, 90 percent, and 95 percent Prediction Intervals
Tables
1. Key Recommendations
2. Example of Two Lags and Two Leads From a Binary Indicator Variable
3. Summary Results for the Forecasting of the Currency Issued
4. Summary Results for the Forecasting of the Currency in Circulation
5. Summary Results for the Forecasting of Currency Issued Using Temporal Hierarchies
Annexes
I. Software Documentation
II. User Guide for R Code of Currency in Circulation
Glossary
| AIC | Akaike’s Information Criterion |
| ARIMA | Auto Regressive Integrated Moving Average |
| ARMA | Auto Regressive Moving Average |
| CBJ | Central Bank of Jordan |
| CiC | Currency in Circulation |
| CrI | Currency Issued |
| ELM | Extreme Learning Machine |
| ETS | Exponential Smoothing Model (E: Error Term, T: Trend, S: Seasonal) |
| IMF | International Monetary Fund |
| KPSS | Kwiatkowski–Phillips–Schmidt–Shin Test of Stationarity |
| MCM | Monetary and Capital Markets Department |
| MLE | Maximum Likelihood Estimator |
| MoU | Memorandum of Understanding |
| NN | Neural Network |
| RMSE | Root Mean Squared Error |
| SARIMA | Seasonal Auto Regressive Integrated Moving Average |
| SLA | Staff Level Agreement |
| TBATS | Trigonometric Seasonal, Box-Cox Transformation, ARMA Residuals, Trend and Seasonality |
| THieF | Temporal Hierarchy Forecasting |
Preface
At the request of the Central Bank of Jordan (CBJ), a Monetary and Capital Markets (MCM) Department remote mission took place from April to June 2021 to assist the authorities in forecasting currency in circulation for Jordan.
The mission met with Nedal Azzam (Executive Manager, Research Department); Mohammad A. Khreisat, Rajeh A. Alkhdour and Rami A. Alhadid (all Executive Manager Assistants, Research Department); Mohammed H. Shinnar (Executive Manager Assistant, Open Market Operations and Public Debt Department); Mohammed N. Arar (Executive Manager Assistant, Investments and Foreign Operations Department); Ibrahim Q. Naser (Head of Division, Monetary Policy Division, Research Department); Tariq A. Almuhaissen, Mahmoud W. Qasem, Farah M. Khamash, Muna M. Alkurdi, Osama Alsayeh (Senior Economists and Senior Specialists at the Research Department and the Open Market Operations and Public Debt Department respectively). The mission wishes to thank the colleagues of the Central Bank of Jordan for their cooperation and productive discussions.
