Impact of Macroeconomic Variables on Inflation Using Factor Analysis

Abstract

The factor analysis concept has been presented and factor model has been proposed. The performance of the proposed network has been measured on a numerical data. To analyse the macro economic variables, which variables are more influenced on the dependent variable of inflation using factor analysis,  Factor analysis is mainly suitable to extract the few factors from the vast number of related variables to a more manageable number, prior to using them in other analysis.The data used in this analysis are eight variables of  macroeconomic monthly data  taken from April 2009 to July 2021. The indicators included in the analysis are Inflation Rate, Crude oil, Nifty Index, USD-INR,  Imports, Exports, Money Supply and IP. This work is proposed a factor analysis to identify the factors underlying the variables of a secondary data.In this study, Kaiser-Meyer-Olkin measure of sampling adequacy and Bartlett’s test of Sphericity are used to assess the factorability of the data. To determine the number of factors to be extracted, Kaiser’s Criterion and Scree test are Examined.In this  statistical analysis industrial production is very less to compare the other factors (independent variables) of factor analysis. The present scenario also it has a less significant impact on the economy