Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/153023
Authors: 
Hendry, David F.
Hubrich, Kirstin
Year of Publication: 
2006
Series/Report no.: 
ECB Working Paper 589
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.
Subjects: 
Disaggregate information
Factor models
forecast model selection
Predictability
VAR
JEL: 
C51
C53
E31
Document Type: 
Working Paper

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