Forecasting aggregates and disaggregates with common features Articles uri icon

publication date

  • December 2013

start page

  • 718

end page

  • 732

issue

  • 4

volume

  • 29

international standard serial number (ISSN)

  • 0169-2070

electronic international standard serial number (EISSN)

  • 1872-8200

abstract

  • This paper focuses on the provision of consistent forecasts for an aggregate economic indicator, such as a consumer price index and its components. The procedure developed is a disaggregated approach based on single-equation models for the components, which take into account the stable features that some components share, such as a common trend and common serial correlation. Our procedure starts by classifying a large number of components based on restrictions from common features. The result of this classification is a disaggregation map, which may also be useful in applying dynamic factors, defining intermediate aggregates or formulating models with unobserved components. We use the procedure to forecast inflation in the Euro area, the UK and the US. Our forecasts are significantly more accurate than either a direct forecast of the aggregate or various other indirect forecasts. (C) 2012 International Institute of Forecasters. Published by Elsevier B.V. All rights reserved.

keywords

  • common trends; common serial correlation; inflation; euro area; uk; us; cointegration; single-equation econometric models; disaggregation maps