Forecasting Inflation Through a Bottom-Up Approach: The Portuguese Case
António Rua and
Cláudia Duarte ()
Working Papers from Banco de Portugal, Economics and Research Department
The aim of this paper is to assess inflation forecasting acurracy over the short-term horizon using Consumer Price Index (CPI) disaggregated data. That is, aggregating forecasts is compared with aggregate forecasting. In particular, three questions are addressed: i) one should bottom-up or not, ii) how bottom one should go and iii) how one should model at the bottom. In contrast with the literature, di erent levels of data dis-aggregation are allowed, namely a higher disaggregation level than the one considered up to now. Moreover, both univariate and multivariate models are considered, such as SARIMA and SARIMAX models with dynamic common factors. An out-of-sample forecast comparison (up to twelve months ahead) is done using Portuguese CPI dataset. Aggregating the forecasts seems to be better than aggregate forecasting up to a five-months ahead horizon. Moreover, this improvement increases with the disaggregation level and the multivariate modelling outperforms the univariate one in the very short-run.
JEL-codes: C22 C32 C43 C53 E31 E37 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:ptu:wpaper:w200502
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