A Fuzzy Logic Approach to Explaining Aggregate Investment in Indonesia, Malaysia, Thailand and Philippines

Abstract

Interest rate is often regarded as one of the key factors affecting fixed investment. This paper studies the impact of the real interest rate on aggregate investments in four of the Southeast Asian countries- Indonesia, Malaysia, Thailand and Philippines from 1995 to 2003 using a non-linear fuzzy logic. Fuzzy logic is ideal for modeling human decision making in an intuitive manner. Linstrom (1998) first applied fuzzy logic approach to investigate the relationship between real interest rate and aggregate investments in Sweden. In his approach, a multivalued logic and a fuzzy indicator are strictly derived from the interest rate. Based on Linstrom work, I develop and extend the fuzzy methodology. The fuzzy model is implemented using Maple language. The results are compared with Linstrom (1998) and two other similar previous studies Tiglioglu (2006), Wang and Yu (2007) with regression models. The overall result appears that there is not any consistency and significant improvement in the performance in these regressions by the approach of fuzzy application taken, and that the introduction of the fuzzification actually worsens the performance. The fuzzy model achieves less than a model on linear equation. In this particular case, Artificial Intelligence application has not performed as well as expected