Forecasting monthly us consumer price indexes through a disaggregated I(2) analysis
Pilar Poncela and
DES - Working Papers. Statistics and Econometrics. WS from Universidad Carlos III de Madrid. Departamento de Estadística
In this paper we carry a disaggregated study of the monthly US Consumer Price Index (CPI). We consider a breakdown of US CPI in four subindexes, corresponding to four groups of markets: energy, food, rest of commodities and rest of services. This is seen as a relevant way to increase information in forecasting US CPI because the supplies and demands in those markets have very different characteristics. Consumer prices in the last three components show I(2) behavior, while the energy subindex shows a lower order of integration, but with segmentation in the growth rate. Even restricting the analysis to the series that show the same order of integration, the trending behavior of prices in these markets can be very different. An I(2) cointegration analysis on the mentioned last three components shows that there are several sources of nonstationarity in the US CPI components. A common trend analysis based on dynamic factor models confirms these results. The different trending behavior in the market prices suggests that theories for price determinations could differ through markets. In this context, disaggregation could help to improve forecasting accuracy. To show that this conjecture is valid for the non-energy US CPI, we have performed a forecasting exercise of each component, computed afterwards the aggregated value of the non energy US CPI and compared it with the forecasts obtained directly from a model for the aggregate. The improvement in one year ahead forecasts with the disaggregated approach is more than 20%, where the root mean squared error is employed as a measure of forecasting performance.
New Economics Papers: this item is included in nep-ets
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6) Track citations by RSS feed
Downloads: (external link)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:cte:wsrepe:ws020301
Access Statistics for this paper
More papers in DES - Working Papers. Statistics and Econometrics. WS from Universidad Carlos III de Madrid. Departamento de Estadística
Bibliographic data for series maintained by Ana Poveda ().