Publication: Forecasting aggregates and disaggregates with common features
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2012-08
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Abstract
This paper focuses on providing consistent forecasts for an aggregate economic
indicator, such as a consumer price index, and all its components. The
procedure developed is a disaggregated approach based on single-equation models for
the components, which take into account the stable features as common trend and
common serial correlation that some components have in common. 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 apply the procedure to forecast inflation in
the Euro area, the UK and the US. Our forecasts are significantly more accurate than a
direct forecast of the aggregate and other indirect forecasts.
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Common trends, Common serial correlation, Inflation, Euro Area, UK, US, Cointegration, Single-equation econometric models, Disaggregation maps