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A system for forecasting Chilean cash demand – the role of forecast combinations

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  • Camila Figueroa S.
  • Michael Pedersen

Abstract

Monetary authorities have to plan how many units of coins and banknotes they need to buy / produce to meet the needs of the economy. This paper presents a system that contains time series models as well as some with fundamental variables to forecast the aggregate cash in circulation as well as the denominations of coins and banknotes. The evidence suggests that the simple average of all the models performs quite well when projecting total stock in circulation, while individual models and sub-combinations often make better predictions for the denominations, which may be due to a small sample problem as a very limited number of forecasts is available. Additional exercises indicate that precise predictions of fundamental variables provide useful input for the predictions of the future circulating cash and that the summation of the denomination forecasts does not beat the prediction of the aggregate circulating stock.

Suggested Citation

  • Camila Figueroa S. & Michael Pedersen, 2019. "A system for forecasting Chilean cash demand – the role of forecast combinations," Journal Economía Chilena (The Chilean Economy), Central Bank of Chile, vol. 22(2), pages 040-068, August.
  • Handle: RePEc:chb:bcchec:v:22:y:2019:i:2:p:040-068
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