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  <front>
    <journal-meta />
    <article-meta>
      <title-group>
        <article-title>Application of Neural Network Technologies in the Analytical System "SHM Horizon"</article-title>
      </title-group>
      <contrib-group>
        <aff id="aff0">
          <label>0</label>
          <institution>Plekhanov Russian University of Economics</institution>
          ,
          <addr-line>36 Stremyanny lane, Moscow, 115998</addr-line>
          ,
          <country country="RU">Russia</country>
        </aff>
      </contrib-group>
      <pub-date>
        <year>1820</year>
      </pub-date>
      <fpage>0000</fpage>
      <lpage>0002</lpage>
      <abstract>
        <p>Strategic planning and management of the economics of Russian Federation and its regions requires an integrated approach to forecasting the key indicators of socio-economic development. This approach is implemented in the hybrid system of short-term forecasting of socio-economic indicators "SHM Horizon", developed by the authors. The implementation of the hybrid approach allows at the first stages to build econometric regression models of indicators, to verify forecasts and identify problem indicators, and, at subsequent stages, for a group of such indicators to build models based on neural networks and decision trees. The purpose of the article is to use the neural network module of the system in predicting the socio-economic indicators of the Russian Federation. In this study the forecasts were built for the main blocks of key indicators: macroeconomics, federal budget, socio-economic and indicators of foreign economic activity. The required quality and accuracy of forecasts was preset. Econometric models showed satisfactory results for 80% of indicators. For the other 20% of indicators calculations were carried out based on the neural network architecture of the multilayer perceptron. As a result, it was possible to achieve a significant improvement in the accuracy of forecasts for the vast majority of indicators and quality for half of them. Our approach and the developed system of hybrid models can be used for forecasting economic development both at the level of the Russian Federation and at regional and municipal levels.</p>
      </abstract>
      <kwd-group>
        <kwd>Artificial Neural Networks</kwd>
        <kwd>Socio-Economic Indicators of the Russian Federation</kwd>
        <kwd>Forecasting</kwd>
        <kwd>Time Series</kwd>
        <kwd>Hybrid Information and Analytical System</kwd>
      </kwd-group>
    </article-meta>
  </front>
  <body>
    <sec id="sec-1">
      <title>-</title>
      <p>An important task of strategic planning and management is to build a system of
shortterm forecasting of socio-economic indicators. An econometric approach based on
systems of regression equations has played a significant role before and remains
relevant. However, the use of linear regression equations to predict economic
performance has its limitations. First, there may be significantly non-linear relationships
between indicators, which are difficult to describe on the basis of linear functions.
Secondly, new indicators appear from time to time in statistical reporting for which
there are no historical values (short series). Third, the values of indicators can be
influenced by hidden factors, which cannot be taken into account explicitly.</p>
      <p>At the same time, over the past 20 years, artificial neural networks (ANNs) have
been successfully used to model nonlinear dependencies. Neural networks are widely
applied to forecasting in different areas of economics and business. Time series
forecasting based on neural networks plays an important role in these areas. At the same
time, forecasting economic indicators cannot be qualitatively solved based on the
analysis of individual time series and individual models. Here, an important role is
played by a hybrid approach based on the construction of a forecasting system that
implements regression, neural network and other models, and the choice of the
desired model is based on the assessment of the quality and accuracy of forecasts. This
approach is implemented in the system of predictive models that we are developing,
the "System of Hybrid Models Horizon". “SHM Horizon” is intended for modeling
and forecasting development indicators at the country and regional levels.</p>
      <p>“SHM Horizon” implements a proven system of multilevel models of
socioeconomic indicators based on interconnected regression equations (regression
module). To predict indicators that are unsatisfactorily described by this system of models,
a module for forecasting time series based on neural networks has been developed.
The purpose of the article is to use the regression and neural network module of the
system for predicting indicators of macroeconomics, state budgets, social sphere and
foreign economic activity of the Russian Federation.</p>
      <p>The article provides an overview of works on neural network methods, with special
attention paid to architectures and forecasting models based on neural networks.
2</p>
    </sec>
    <sec id="sec-2">
      <title>Literature Review</title>
      <p>
        For the implementation of strategic planning and management, it is necessary to have
a system for forecasting socio-economic indicators. Such systems are traditionally
based on econometric models. In 1955, R.L. Klein applied an econometric approach
to predict the macroeconomic indicators of the US economy [
        <xref ref-type="bibr" rid="ref1">1</xref>
        ]. Analytical reviews
and a mathematical description of such models are given in the works [
        <xref ref-type="bibr" rid="ref2">2</xref>
        ] and [
        <xref ref-type="bibr" rid="ref3">3</xref>
        ]. The
monograph [
        <xref ref-type="bibr" rid="ref4">4</xref>
        ] describes econometric country models and identifies directions for the
design and development of macroeconomic forecasting systems. The econometric
approach to forecasting was further developed in [
        <xref ref-type="bibr" rid="ref5 ref6 ref7">5-7</xref>
        ]. In the work [
        <xref ref-type="bibr" rid="ref8">8</xref>
        ] a range of
econometric country models is discussed. Models for Russian economics is
overviewed in [
        <xref ref-type="bibr" rid="ref9">9</xref>
        ].
      </p>
      <p>
        The features of the time series of socio-economic indicators are relatively short
data series, the presence of structural shifts and the relationship between different
groups of indicators, as well as nonlinear dependencies between indicators. Therefore,
linear models are not always able to give qualitative results. In this regard, a hybrid
approach based on the construction of an ensemble of hybrid models is promising, in
which, along with regression models, models based on neural networks, decision
trees, and neuro-fuzzy networks are used. In recent years, in many works, the hybrid
approach has been developed to forecast time series [
        <xref ref-type="bibr" rid="ref10 ref11 ref12 ref13 ref14">10-14</xref>
        ].
      </p>
      <p>It should be noted that in Russia there is a number of systems for forecasting
socioeconomic indicators, however, these are closed proprietary systems and are aimed at
solving individual particular problems.</p>
      <p>
        In Plekhanov Russian University of Economics, the authors are developing a
specialized information and analytical system "SHM Horizon" (SHM - a system of
hybrid models), which allows for building scenario based medium and short-term
forecasts of more than 600 socio-economic indicators of the Russian Federation. It’s
architecture, implemented models and methods are described in detail in [
        <xref ref-type="bibr" rid="ref15 ref16">15, 16</xref>
        ]. At
the moment, the system comprises a module for regression models of socio-economic
indicators of the Russian Federation, a neural networks module and a forecasting
module based on decision trees.
      </p>
      <p>Our study is devoted to predicting socio-economic series using both regression
models and neural networks, therefore, further we give a review of works in the field
of applying various ANN architectures in forecasting.</p>
      <p>
        Artificial neural networks are used in a wide range of areas, including economics
[
        <xref ref-type="bibr" rid="ref17 ref18 ref25">17, 18, 25</xref>
        ] and finance [
        <xref ref-type="bibr" rid="ref19 ref20 ref21">19-21</xref>
        ]. Research on time series forecasting based on neural
networks has been developing for over 20 years. One of the first works on the
methodology of using neural networks in forecasting was the work of Zhang, 1998 [
        <xref ref-type="bibr" rid="ref22">22</xref>
        ],
which compares the results of forecasting based on a neural network with a number of
statistical methods. The efficiency of time series modeling based on a multilayer
perceptron in combination with the Back-propagation algorithm is demonstrated in the
works of G. Peter Zhang [
        <xref ref-type="bibr" rid="ref23">23</xref>
        ], Michael Štencl 2011 [
        <xref ref-type="bibr" rid="ref24">24</xref>
        ].
      </p>
      <p>
        Although the multilayer perceptron architecture has found wide application,
recurrent networks are also used to predict economic series. The article [
        <xref ref-type="bibr" rid="ref26">26</xref>
        ] considers a
number of neural network architectures, and compares the results of forecasting
economic series (exchange rate, stock market index, economic growth indicator) based
on different architectures.
      </p>
      <p>
        The paper [
        <xref ref-type="bibr" rid="ref27">27</xref>
        ] describes the method of weighted online learning (WG-Learning)
of the LSTM recurrent network for forecasting time series in the presence of outliers,
tested on extensive experiments with both synthetic and real data sets. The work [
        <xref ref-type="bibr" rid="ref28">28</xref>
        ]
proposes a new end-to-end architecture of a recurrent neural network based on an
extended attention mechanism for modeling and forecasting time series of economic
indicators containing missing values.
      </p>
      <p>
        In [
        <xref ref-type="bibr" rid="ref29">29</xref>
        ], using the example of forecasting a macroeconomic indicator (monthly CPI
in the USA), demonstrates that recurrent neural networks LSTM outperforms all other
forecasting techniques including statistical models and architecture of a multilayer
perceptron.
      </p>
      <p>
        Application of models of recurrent neural networks - LSTM and GRU, for
forecasting time series in the study [
        <xref ref-type="bibr" rid="ref30">30</xref>
        ] did not show the difference in forecasting
efficiency of these 2 models. The authors of [
        <xref ref-type="bibr" rid="ref31 ref32">31-32</xref>
        ] note the superiority of LSTM
network models over autoregression in predicting US macroeconomic indicators, which
they associate with the nonlinearity of the indicators.
      </p>
      <p>Based on the studies considered, it can be concluded that for forecasting economic
time series based on ANN, it is advisable to use the multilayer perceptron architecture
and, if it is necessary to take into account long-term dependencies, - recurrent LSTM
networks.
3</p>
    </sec>
    <sec id="sec-3">
      <title>Materials and methods</title>
      <p>In the considered hybrid approach to forecasting economic indicators, two types of
models are distinguished: balance-econometric systems of models and intelligent
models based on artificial neural networks, decision trees, etc. (Fig. 1).</p>
      <p>Based on a study of sources published by the Federal State Statistics Service, the
Central Bank, the Ministry of Finance and the Ministry of Economic Development of
the Russian Federation, groups of indicators were identified that characterize the state
of the country's economic development. For modeling, both data published by the
Federal State Statistics Service and those downloaded from the Contour BI system
deployed in the situational center of the Plekhanov Russian University of Economics.
The increment of the studied time series, as well as the forecast step, is equal to one
year. The system contains data from 2003 to 2019.</p>
      <p>Our work examines the time series characterizing the economic indicators of the
Russian economy. The general structure of blocks of indicators is shown in Fig. 2. A
block of foreign economic activity is currently under development.</p>
      <p>In the system SHM Horizon system a scenario approach to forecasting is adopted.
The development trajectory is set by a group of scenario indicators determined on the
basis of a forecast of the long-term socio-economic development of Russia for the
period up to 20301.</p>
      <p>In the model, the following were chosen as scenario conditions:
 The refinancing rate of the Central Bank
 Rate of growth of money supply
 Average export prices for Urals oil
 Change in the international foreign exchange reserves of the Russian Federation
 Gross domestic product</p>
      <p>In the block for calculating quality indicators, the researcher can set the acceptable
values for quality and accuracy indicators. Quality indicators include the coefficient
of determination (R2), the Durbin-Watson test (DW), and the Fisher's F-test. The
accuracy is estimated by the value of the mean relative error Δ (MAPE) based on the
retro forecast.</p>
      <p>The accepted limits for the values of the accuracy and quality criteria are shown in
the Table 1.
1 Forecast of long-term socio-economic development of the Russian Federation for the period up to 2030
(developed by the Ministry of Economic Development of the Russian Federation),
http://www.consultant.ru/document/cons_doc_LAW_144190, last accessed 2020/10/08.</p>
      <p>
        The neural network module of the system is built on the basis of the architecture of
the multilayer perceptron (MLP, Multy Layer Perceptron), which is a fully connected
neural feedforwarded network [
        <xref ref-type="bibr" rid="ref33">33</xref>
        ].
      </p>
      <p>The multilayer perceptron architecture assumes an input layer, an output layer, and
one or more inner layers. On all layers, except for the input layer, a non-linear
activation function is used for signal transmission. In a multilayer perceptron, the signal is
transmitted in one direction, from left to right from layer to layer. Fully connected
network means that each neuron in any layer of the network is connected with all
neurons of the previous layer. In most cases, sigmoid and hyperbolic tangent are used
as activation functions in MLP.</p>
      <p>
        In 1989, Cybenko [
        <xref ref-type="bibr" rid="ref34">34</xref>
        ] proved that a feedforward artificial neural network with one
hidden layer can approximate any continuous function of many variables with any
accuracy, therefore MLPs are successfully used in the construction of regression
models. However, when solving specific modeling problems, it is necessary to carry
out multiple experiments to determine the network configuration, algorithm and
training parameters in order to achieve the required model accuracy with an acceptable
training time. Particular attention should be paid to the quality of the constructed
model, i.e., its generalizing ability.
      </p>
      <p>
        The most widely used algorithm for training a multilayer perceptron is the Back
Propagation algorithm proposed in the works [
        <xref ref-type="bibr" rid="ref35 ref36 ref37">35-37</xref>
        ]. In the Back Propagation
algorithm, the correction of the weights of neurons in the hidden layers of the neural
network is calculated based on the output error of the network. The algorithm is simple
to implement and allows you to train the network in a reasonable time.
      </p>
      <p>However, since the Back Propagation algorithm uses the gradient descent method,
which is one of the local optimization methods, the network can fall into a local
minimum and no further training will be performed. Another disadvantage of MLP
networks for forecasting is that the do not have memory, that is, they cannot process
sequences of arbitrary length. In the case of time series, this means that it is
impossible to take into account the influence of the previous states of the series on the current
predicted value. In our case this is not a problem, since the studied series of indicators
have a short length.</p>
    </sec>
    <sec id="sec-4">
      <title>Results</title>
      <p>
        In the system "SHM Horizon" modules have been developed for building, along with
regression predictive models, intelligent models, including neural networks and
regression decision trees. As our experiments with the calculation of the Russian
Federation indicators for the social sphere show [
        <xref ref-type="bibr" rid="ref15">15</xref>
        ], the use of neural network models to
predict a number of indicators for which the regression model gives unsatisfactory
results made it possible to implement high-quality and accurate forecasts for the entire
set of indicators. The process of building models in the system is shown in Fig. 3.
The system is developed on the DotNet platform (.core) in the C # language. The
"Neural Networks" module is implemented using the FANN library which was
created in the С ++ language and was adapted for the С # language. The library has
methods for building multilayer perceptrons and training the network using the backprop
method. The method of creating a neural network allows you to describe the
configuration of a neural network and set the activation function (relu, sigmoid, hyperbolic
tangent, etc.). The network training method takes as a parameter the training rate, the
number of epochs and the admissible error on the training and test samples. The initial
weights are given by the weight matrix. The results of the method are training errors,
calculation results at each stage of the neural network, and weights. The advantage of
the FANN library is its efficiency and the availability of quality documentation. The
library has an open source, which made it possible to use it within the framework of
the development of the "SHM Horizon".
      </p>
      <p>Within the framework of this study, calculations were carried out for the following
blocks of indicators: macroeconomics, federal budget, socio-economic and indicators
of foreign economic activity. Blocks and groups of indicators are shown in Table 2.</p>
      <p>Macroeconomic Federal budget Socio-economic Foreign economic
indicators indicators indicators activity
 Federal budget  Cash income of  Export figures
 Production of revenues as% of the population  Export by
varigoods in GDP GDP billion rubles. ous types of
 Service produc-  Corporate in-  Cash income of goods
tion in GDP come tax the population  Import rates
 Net (excluding  Value added tax by type (remu-  Import for
varisubsidies) taxes  Income from neration of em- ous types of
on products foreign econom- ployees, income goods
 Remuneration ic activity (cu- from property,
of employees 1 mulative) income from
en(reporting data  Federal budget trepreneurial
acof the Russian expenditures tivity, etc.)
Federal State  Public admin-  Cash
expendiStatistics Ser- istration tures of the
vice GDP2)  Total FB ex- population
 Gross profit of penses  Use of monetary
the economy  Surplus (+), incomes of the
(gross mixed in- deficit (-) of the population
(purcoonme)pNroedtutcatxioens federal budget acnhadspeayomfegnot ofdosr
and export- services,
payimport opera- ment of
mandations tory payments
 Final consump- and
contribu</p>
      <p>tion expenditure tions, etc.)
 Gross capital  Average per
formation capita monetary
income of the
population
 Population</p>
      <p>growth rates
 Labor market
indicators</p>
      <p>At the first stage, calculations were carried out for the econometric model: linear
regression equations were constructed for all 60 indicators and verification was
carried out. The verification results are presented in Table 3.
0,71
0,87
0,78
0,92
0,87
0,9
0,87
0,51
0,41
0,92
0,81
0,76</p>
      <p>When forecasting using ANN, for 12 indicators (except for the indicator Number
of dropouts) the forecast accuracy (MAPE) was increased significantly, and for three
of them the forecast quality (R2) was significantly improved.</p>
      <p>As an example of the success of the neural network model, retro forecasts using
regression and neural network models for the indicator "Savings of the population as
a percentage of income" are shown in Fig. 4 and Fig. 5.</p>
      <p>Fact</p>
      <p>Model</p>
    </sec>
    <sec id="sec-5">
      <title>Discussion</title>
      <p>Country econometric models continue to play an important role in planning and
forecasting key indicators of socio-economic development. They allow to take into
account the interdependencies of indicators associated with their economic content.</p>
      <p>At the same time, many economic time series are characterized by nonlinear
dependencies, and the influencing factors are often impossible to describe explicitly in
the form of regression equations. This makes, as shown by numerous studies, the
application of neural network methods and technologies very promising.</p>
      <p>Over the past decade, approaches to forecasting time series based on feedforward
networks and recurrent networks have been developing, including their application for
forecasting economic indicators. At the same time, machine learning platforms and
tools are becoming widespread, making it possible to implement all the main
architectures and methods of training neural networks.</p>
      <p>It should be noted that the use of neural network tools for separate unrelated time
series does not allow for a systematic approach to modeling the economic sphere. We
are convinced that a hybrid methodology should be applied with the possibility of
choice in each case the most appropriate method. Such an approach is implemented in
developed by the authors specialized hybrid forecasting system “SHM Horizon”
system.</p>
      <p>The results presented in the article demonstrate its success in forecasting the set of
indicators of macroeconomics, state budgets, social sphere and foreign economic
activity of the Russian Federation.
6</p>
    </sec>
    <sec id="sec-6">
      <title>Conclusion</title>
      <p>Calculations for predicting indicative indicators of the development of the Russian
Federation based on regression and neural network models have been carried out. The
presented study made it possible to obtain the following results:
 a hybrid approach to building models and forecasts has been developed, in which,
at the first stage, a regression model is built for all the studied indicators, then a
multiple regression model is checked based on expert estimates of quality and
accuracy values, and at the third stage, intelligent models are used for indicators with
unsatisfactory values based on machine learning;
 in the “SHM Horizon” system the forecasting of a system of 60 indicators of
macroeconomics, state budgets, social sphere and foreign economic activity of the
Russian Federation was performed using hybrid models;
 for 47 of 60 indicators the regression model showed high and satisfactory values of
quality and accuracy; for 13, the improvement in the quality and accuracy of the
forecast was achieved through the use of a model of artificial neural networks
based on the multilayer perceptron architecture.</p>
      <p>The system "SHM Horizon" can find application in predicting the indicators of the
development of regions of the Russian Federation, in particular in regional situational
centers. Integration of the system with regional situational centers will make it
possible to carry out more accurate target planning based on forecasts, as well as to predict
the likelihood of crisis situations.
7</p>
    </sec>
    <sec id="sec-7">
      <title>Acknowledgments</title>
      <p>This study was carried out within the framework of the scientific project No.
20-5700024 "Development of models and technologies for assessing the state of
components of large-scale socio-economic and organizational-technical systems based on
artificial intelligence methods", which received support from the Russian Foundation
for Basic Research as a result of the competitive selection of scientific projects as the
winner of the competition Bel_a - Competition for the best projects of fundamental
research, held jointly by the RFBR and the Belarusian Republican Foundation for
Fundamental Research.</p>
    </sec>
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