Arma Model Application

Arma Model Application

Prediction and Analysis of the Gap of Per Capita Annual Income between Rural and City Households based on ARMA model
Abstract This paper applies ARMA model into the analysis of the gap of per capita annual income between rural and city households from 1978 to 2011. Firstly, it builds up several ARMA models based on 1978-2009 data; and then predicts the income gaps of 2010 and 2011. Compared to the real income gaps of 2010 and 2011, this paper shows that ARMA model works well in this time series prediction. Keyword B-J model, ARMA model, per capita annual income of rural and city households

1 Introduction
With the rapid development of the China economy, people’s life levels are rising year after year. However, there’re many social problems in the booming economy, such as the income gap between rural and city households. The increasing gap of per capita annual income between rural and city households has been a heat topic in the society, since it may result in the inequality in the social welfare distributions. Also, it will discourage the rural households’ working efficiency and reduce their happiness. In order to deal with this social problem in a proper way, many researchers have been thinking about it and offering advice to the policy makers. LU (2004) says that the phenomenon of urbanization has an important effect on the income gap between rural and city households [1]. YAO (2005) analyzes the relationship between the unbalanced financial development and the income gap of rural and city households [2]. WANG (2009) points out the negative effect of the increasing income gap on the China economy [3]. This paper aims at analyzing the time series of the income gap and offering the future predictions. Since the ARMA model, sometimes called Box-Jenkins model, is a very useful tool for understanding and predicting future values in the time series [4, 5], we apply it in this paper.

2 Data
2.1 Data source
We get the 1978-2011 per capita annual income of rural...

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