DATA5000 Programming AI for Business Analytics Report 3 Sample

DATA5000 Programming AI for Business Analytics Report 3

Your Task

You are required to:

1. Create a “bi-annual report” for the Australian “Directorate for Geopolitical and Economic Analytics”.

2. Showcases your creative, analytical, and technical strengths in the application of AI-causal models with Large Language Models for forecasting.

Background

Australia has established the “Directorate for Geopolitical and Economics Analytics” (DGEA) and you have been appointed as the Director for Business Analytics.
Your core responsibilities are:

• To apply AI Causal and Large Language Models for the analysis of macroeconomic data.

• To create the bi-annual “Geopolitical and Economics Outcomes” report for the Directorate that details the causal factors responsible for the shifts in Australian macroeconomic indicators such as inflation rate, interest rates, and overall economic growth.

• To provide short-term, 3-6 months forecasts, using the latest advancements in AI, specifically, that of NeuralProphet and LLMs.

• To identify macroeconomic causal factors that have an impact on the Australian inflation rate and overall economic growth.

• To make strategic recommendations on the Monetary and Economic Policy to the Australian Government.

Solution

Introduction

Australia’s geopolitical and economic environment is therefore largely defined by its designation as a primary exporter of commodities to the EU, US, and other countries like the BRICS nations – Brazil, Russia, India, China, and South Africa. Because these regions and Australian economy are intertwined very tightly, its economy is very vulnerable to changes in the global markets of commodities and large macroeconomic fluctuations. As a result of the ongoing relations between the US and China over trade truce, the COVID-19 recovery efforts and core inflationary forces have presented humongous economic shocks. Income from major export products for MBA Assignment Expert such as iron ores, natural gas, and coal are essential components of the Australian balance of trade, while general contributors to the unpredictability of the economic determinants include; inflation and volatility in prices for Australia’s commodities.

Figure 1 below presents the historical trend of Australia’s Monthly Consumer Price Index (CPI) with special reference to inflationary surges associated with some form of external economic shock.

Figure 1 Australia Monthly CPI over Time

Figure 2 depict the relationship of the unemployment rate with the cash rate by the Reserve Bank of Australia (RBA) highlighting the precariousness between monetary policy and the labor market.

Figure 2 Australia Unemployment Rate and Cash rate Over time

Figure 3 compares the price trends of Copper and Iron Ore (left), both essential exports for Australia’s economy, and the price movements of Gold (right), a key asset in times of global economic uncertainty.

Figure 3 Copper Price vs Iron Ore Prce (Left), Gold Price (Right)

Methodology

Methodology is described in Figure 4,

Figure 4 Methodology

Results

The results from the OLS regression demonstrate strong correlations between inflation and several causal factors, such as the prices of Copper and Iron Ore, the US Federal Funds Rate, and Australia's unemployment and participation rates. Notably, commodity prices, including Gold and Copper, play a crucial role in driving inflation.

Figure 5 shows the forecasted inflation rate for Australia using NeuralProphet without considering causal factors, while Table 1 lists significant causal factors and their statistical importance, based on the regression analysis.

OLS Regression Results:

• R-squared: 0.951

• Significant Factors:

o GOLD_HIGH: Positive relationship with inflation.

o COPPER_PRICE: Negative correlation with inflation.

o AUS_BROAD_MONEY_DMABMN: Significant negative effect.

o US_FEDFUNDS: Strong positive correlation.

Figure 5 Forecast Inflation Rate without Causal Factors using NeuralProphet

Table 1 Significant Causal factors

Figure 6 illustrates the SHAP feature importance and summary plots, showing the top contributors to inflation predictions, including employment rates, commodity prices, and monetary aggregates. Figure 7 presents a What-If analysis with WTI Crude oil prices, highlighting the potential impact of future changes in oil prices on inflation.

Figure 6 SHAP feature importance plot (Left), SHAP summary plot (Right)

Figure 7 What IF Analysis with WTI

Forecasted results with Temporal Fusion is shown in Figure 8.

Figure 8 Forecasted results with Temporal Fusion.

Insights and Recommendations

Australia is an open economy and thereby it has large export of Iron Ore, Copper and Gold which are closely situated in international commodity markets. A change in these items has an impact on the rate of inflation in the country hence the importance of the commodities when assessing performance. This means that if there is fluctuation of demand for these exported goods on the international markets, there might be economic shakiness, thereby the importance of diversification of the economy to cope with risks.

Over reliance on traditional markets can therefore be addressed by forging even higher trade relations with emerging markets like BRICS nations. Also, there is the consideration of the fact that inflation rate in Australia is pegged on financial market in the world particularly the US Federal Funds rate. Over centralisation of monetary policies across the globe requires Australia to look for similar strategies as a way of balancing its economy. Inflation control will call for close monitoring of international interest rates and consistent early acclimatization of national policies such as policy controlled broad money supply.

Other factors that also influence inflation include; Domestic factors such as unemployment and participation of labor force. Lack of employment and low employment rates put pressure on the few available employments to up surge the prices, this is why the government need to formulate policies which would increase employment. This we believe needed to be done with more representation of everyone in the market to help bring down the inflation rate as the economy grows.

Table 2 Key Insights and Recommendations

Over the next months, some problems that can be expected in Australia are the growth of energy prices and fluctuations in supplies. These problems will need to be tackled by a combination of well-coordinated policies, emerging trade partners, and the desire for further inflation and employment rate stabilization.

Reference

Peng, Y, Ni, M & Wang, X 2023, ‘Identifying price bubbles in copper market: Evidence from a GSADF test approach’, PLOS ONE, vol. 18, no. 11, p. e0290983.

Reserve Bank of Australia 2015, ‘Box A: The Effects of Changes in Iron Ore Prices | Statement on Monetary Policy – February 2015’, Statement on Monetary Policy, Reserve Bank of Australia, no. February.