Forecasting Aggregates by Disaggregates

Kirstin Hubrich and David Hendry

No 270, Computing in Economics and Finance 2005 from Society for Computational Economics

Abstract: We explore whether forecasting an aggregate variable using information on its disaggregate components can improve the prediction mean squared error over forecasting the disaggregates and aggregating those forecasts, or using only aggregate information in forecasting the aggregate. An implication of a general theory of prediction is that the first should outperform the alternative methods to forecasting the aggregate in population. However, forecast models are based on sample information. The data generation process and the forecast model selected might differ. We show how changes in collinearity between regressors affect the bias-variance trade-off in model selection and how the criterion used to select variables in the forecasting model affects forecast accuracy. We investigate why forecasting the aggregate using information on its disaggregate components improves forecast accuracy of the aggregate forecast of Euro area inflation in some situations, but not in others.

Keywords: Disaggregate information; predictability; forecast model selection; VAR; factor models (search for similar items in EconPapers)
JEL-codes: C32 C53 E31 (search for similar items in EconPapers)
Date: 2005-11-11
New Economics Papers: this item is included in nep-ecm, nep-eec, nep-ets, nep-for and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (20)

Downloads: (external link)
http://repec.org/sce2005/up.7592.1107171810.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:sce:scecf5:270

Access Statistics for this paper

More papers in Computing in Economics and Finance 2005 from Society for Computational Economics Contact information at EDIRC.
Bibliographic data for series maintained by Christopher F. Baum ().