To aggregate or not to aggregate? Euro area inflation forecasting
AbstractIn this paper we investigate whether the forecast of the HICP components (indirect approach) improves upon the forecast of overall HICP (direct approach) and whether the aggregation of country forecasts improves upon the forecast of the euro-area as a whole, considering the four largest euro area countries. The direct approach provides clearly better results than the indirect approach for 12 and 18 steps ahead for the overall HICP, while for shorter horizons the results are mixed. For the euro area HICP excluding unprocessed food and energy(HICPX), the indirect forecast outperforms the direct whereas the differences are only marginal for the countries. The aggregation of country forecasts does not seem to improve upon the forecast of the euro area HICP and HICPX. This result has however to be taken with caution as differences appear to be rather small and due to the limited country coverage. JEL Classification: C11, C32, C53, E31, E37
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by European Central Bank in its series Working Paper Series with number 0374.
Date of creation: Jul 2004
Date of revision:
Contact details of provider:
Postal: Postfach 16 03 19, Frankfurt am Main, Germany
Phone: +49 69 1344 0
Fax: +49 69 1344 6000
Web page: http://www.ecb.europa.eu/home/html/index.en.html
More information through EDIRC
Postal: Press and Information Division, European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany
Find related papers by JEL classification:
- C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models
- C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
- E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
- E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-10-04 (All new papers)
- NEP-ECM-2005-10-04 (Econometrics)
- NEP-EEC-2005-10-04 (European Economics)
- NEP-FOR-2005-10-04 (Forecasting)
- NEP-MAC-2005-10-04 (Macroeconomics)
- NEP-MON-2005-10-04 (Monetary Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Ard Reijer & Peter Vlaar, 2006.
"Forecasting Inflation: An Art as Well as a Science!,"
Springer, vol. 154(1), pages 19-40, 03.
- P.J.G. Vlaar & A.H.J. den Reijer, 2003. "Forecasting inflation: An art as well as a science!," DNB Staff Reports (discontinued) 107, Netherlands Central Bank.
- Peter Vlaar & Ard den Reijer, 2004. "Forecasting inflation: An art as well as a science!," Computing in Economics and Finance 2004 148, Society for Computational Economics.
- Thomas Doan & Robert B. Litterman & Christopher A. Sims, 1986.
"Forecasting and conditional projection using realistic prior distribution,"
93, Federal Reserve Bank of Minneapolis.
- Thomas Doan & Robert B. Litterman & Christopher A. Sims, 1983. "Forecasting and Conditional Projection Using Realistic Prior Distributions," NBER Working Papers 1202, National Bureau of Economic Research, Inc.
- Friedrich Fritzer & Gabriel Moser & Johann Scharler, 2002. "Forecasting Austrian HICP and its Components using VAR and ARIMA Models," Working Papers 73, Oesterreichische Nationalbank (Austrian Central Bank).
- Kadiyala, K Rao & Karlsson, Sune, 1997.
"Numerical Methods for Estimation and Inference in Bayesian VAR-Models,"
Journal of Applied Econometrics,
John Wiley & Sons, Ltd., vol. 12(2), pages 99-132, March-Apr.
- Hubrich, Kirstin, 2005.
"Forecasting euro area inflation: Does aggregating forecasts by HICP component improve forecast accuracy?,"
International Journal of Forecasting,
Elsevier, vol. 21(1), pages 119-136.
- Kirstin Hubrich, 2004. "Forecasting euro area inflation: Does aggregating forecasts by HICP component improve forecast accuracy?," Computing in Economics and Finance 2004 230, Society for Computational Economics.
- Hubrich, Kirstin, 2003. "Forecasting euro area inflation: Does aggregating forecasts by HICP component improve forecast accuracy?," Working Paper Series 0247, European Central Bank.
- Meyler, Aidan & Kenny, Geoff & Quinn, Terry, 1998.
"Forecasting irish inflation using ARIMA models,"
11359, University Library of Munich, Germany.
- Toshitaka Sekine, 2001. "Modeling and Forecasting Inflation in Japan," IMF Working Papers 01/82, International Monetary Fund.
- Kenny, Geoff & Meyler, Aidan & Quinn, Terry, 1998.
"Bayesian VAR Models for Forecasting Irish Inflation,"
11360, University Library of Munich, Germany.
- Kenny, Geoff & Meyler, Aidan & Quinn, Terry, 1998. "Bayesian Var Models for Forecasting Irish Inflation," Research Technical Papers 4/RT/98, Central Bank of Ireland.
- Massimiliano Marcellino & James H. Stock & Mark W. Watson, .
"Macroeconomic Forecasting in the Euro Area: Country Specific versus Area-Wide Information,"
201, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
- Marcellino, Massimiliano & Stock, James H. & Watson, Mark W., 2003. "Macroeconomic forecasting in the Euro area: Country specific versus area-wide information," European Economic Review, Elsevier, vol. 47(1), pages 1-18, February.
- Jonas D. M. Fisher & Chin Te Liu & Ruilin Zhou, 2002. "When can we forecast inflation?," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q I, pages 32-44.
- Rebeca Albacete & Antoni Espasa, 2005. "Forecasting Inflation In The Euro Area Using Monthly Time Series Models And Quarterly Econometric Models," Statistics and Econometrics Working Papers ws050401, Universidad Carlos III, Departamento de Estadística y Econometría.
- Carson, Richard T. & Cenesizoglu, Tolga & Parker, Roger, 2011.
"Forecasting (aggregate) demand for US commercial air travel,"
International Journal of Forecasting,
Elsevier, vol. 27(3), pages 923-941.
- Carson, Richard T. & Cenesizoglu, Tolga & Parker, Roger, 2011. "Forecasting (aggregate) demand for US commercial air travel," International Journal of Forecasting, Elsevier, vol. 27(3), pages 923-941, July.
- Melolinna, Marko, 2011. "What explains risk premia in crude oil futures?," Research Discussion Papers 2/2011, Bank of Finland.
- Aron, Janine & Muellbauer, John, 2010. "Does aggregating forecasts by CPI component improve inflation forecast accuracy in South Africa?," CEPR Discussion Papers 7895, C.E.P.R. Discussion Papers.
- Kitov, Ivan & KItov, Oleg, 2013.
"Does Banque de France control inflation and unemployment?,"
50239, University Library of Munich, Germany.
- Ivan Kitov & Oleg Kitov, 2013. "Does Banque de France control inflation and unemployment?," Papers 1311.1097, arXiv.org.
- Fabio Rumler, 2006. "The New Keynesian Phillips Curve for Austria – An Extension for the Open Economy," Monetary Policy & the Economy, Oesterreichische Nationalbank (Austrian Central Bank), issue 4, pages 55â69, January 2.
- Duarte, Claudia & Rua, Antonio, 2007. "Forecasting inflation through a bottom-up approach: How bottom is bottom?," Economic Modelling, Elsevier, vol. 24(6), pages 941-953, November.
- Janine Aron & John Muellbauer, 2008. "New methods for forecasting inflation and its sub-components: application to the USA," Economics Series Working Papers 406, University of Oxford, Department of Economics.
- Gabriel Moser & Fabio Rumler & Johann Scharler, 2004.
"Forecasting Austrian Inflation,"
91, Oesterreichische Nationalbank (Austrian Central Bank).
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Official Publications).
If references are entirely missing, you can add them using this form.