This research utilizes a hybrid model combining the Daubechies Wavelet Transform with the ARIMAX model to eliminate noise and improve the characteristics of the two time series for forecasting the inflation rate in Iraq. Inflation is a major negative economic phenomenon affecting most economies worldwide due to its impact on various economic, social, and other sectors. This study compares the performance of the ARIMAX model before and after applying the wavelet transform to the inflation rate (an internal variable) and oil prices (an external variable) during the period from December 2010 to January 2024. The RMSE and MAE criteria were used to assess the forecast accuracy. The results showed the model’s superiority after applying the Daubechies Wavelet, as it exhibited the lowest values for the forecast accuracy criteria. This hybrid approach is preferred for forecasting time series with high volatility.
Al-Hussein et al. (Mon,) studied this question.