Forecasting economic aggregates by disaggregates

David F. Hendry () and Kirstin Hubrich ()

No 589, Working Paper Series from European Central Bank

Abstract: We suggest an alternative use of disaggregate information to forecast the aggregate variable of interest, that is to include disaggregate information or disaggregate variables in the aggregate model as opposed to first forecasting the disaggregate variables separately and then aggregating those forecasts or, alternatively, using only lagged aggregate information in forecasting the aggregate. We show theoretically that the first method of forecasting the aggregate should outperform the alternative methods in population. We investigate whether this theoretical prediction can explain our empirical findings and analyse why forecasting the aggregate using information on its disaggregate components improves forecast accuracy of the aggregate forecast of euro area and US inflation in some situations, but not in others. JEL Classification: C51; C53; E31.

Keywords: Disaggregate information; predictability; forecast model selection; VAR; factor models. (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-ets, nep-for and nep-mac
Date: 2006-02
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Related works:
Working Paper: Forecasting Economic Aggregates by Disaggregates (2006)
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