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Forecast densities for economic aggregates from disaggregate ensembles

  • Francesco Ravazzolo


    (Norges Bank (Central Bank of Norway))

  • Shaun P. Vahey


We propose a methodology for producing forecast densities for economic aggregates based on disaggregate evidence. Our ensemble predictive methodology utilizes a linear mixture of experts framework to combine the forecast densities from potentially many component models. Each component represents the univariate dynamic process followed by a single disaggregate variable. The ensemble produced from these components approximates the many unknown relationships between the disaggregates and the aggregate by using time-varying weights on the component forecast densities. In our application, we use the disaggregate ensemble approach to forecast US Personal Consumption Expenditure in°ation from 1997Q2 to 2008Q1. Our ensemble combining the evidence from 11 disaggregate series outperforms an aggregate autoregressive benchmark, and an aggregate time-varying parameter specification in density forecasting.

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Paper provided by Norges Bank in its series Working Paper with number 2010/02.

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Length: 30 pages
Date of creation: 05 Mar 2010
Date of revision:
Handle: RePEc:bno:worpap:2010_02
Note: First version:
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  1. Dr. James Mitchell, 2005. "Evaluating, comparing and combining density forecasts using the KLIC with an application to the Bank of England and NIESR ÔfanÕ charts of inflation," NIESR Discussion Papers 253, National Institute of Economic and Social Research.
  2. Todd E. Clark, 2003. "Disaggregate evidence on the persistence of consumer price inflation," Research Working Paper RWP 03-11, Federal Reserve Bank of Kansas City.
  3. Anne Sofie Jore & James Mitchell & Shaun Vahey, 2008. "Combining Forecast Densities from VARs with Uncertain Instabilities," Reserve Bank of New Zealand Discussion Paper Series DP2008/18, Reserve Bank of New Zealand.
  4. Wallis, Kenneth F., 2002. "Chi-squared tests of interval and density forecasts, and the Bank of England's fan charts," Royal Economic Society Annual Conference 2002 181, Royal Economic Society.
  5. Panagiotelis, Anastasios & Smith, Michael, 2008. "Bayesian density forecasting of intraday electricity prices using multivariate skew t distributions," International Journal of Forecasting, Elsevier, vol. 24(4), pages 710-727.
  6. Todd E. Clark, 2009. "Real-time density forecasts from VARs with stochastic volatility," Research Working Paper RWP 09-08, Federal Reserve Bank of Kansas City.
  7. Carlos Capistrán & Allan Timmermann, 2008. "Forecast Combination With Entry and Exit of Experts," CREATES Research Papers 2008-55, School of Economics and Management, University of Aarhus.
  8. Todd E. Clark & Michael W. McCracken, 2010. "Averaging forecasts from VARs with uncertain instabilities," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 25(1), pages 5-29.
  9. James H. Stock & Mark W. Watson, 2007. "Why Has U.S. Inflation Become Harder to Forecast?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(s1), pages 3-33, 02.
  10. Timmermann, Allan, 2006. "Forecast Combinations," Handbook of Economic Forecasting, Elsevier.
  11. Dr. James Mitchell, 2009. "Macro Modelling with Many Models," NIESR Discussion Papers 337, National Institute of Economic and Social Research.
  12. Gneiting, Tilmann & Raftery, Adrian E., 2007. "Strictly Proper Scoring Rules, Prediction, and Estimation," Journal of the American Statistical Association, American Statistical Association, vol. 102, pages 359-378, March.
  13. Groen, J.J.J. & Paap, R., 2009. "Real-time inflation forecasting in a changing world," Econometric Institute Research Papers EI 2009-19, Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute.
  14. Giordani, Paolo & Kohn, Robert, 2006. "Efficient Bayesian Inference for Multiple Change-Point and Mixture Innovation Models," Working Paper Series 196, Sveriges Riksbank (Central Bank of Sweden).
  15. Valentina Corradi & Norman Swanson, 2004. "Predictive Density Evaluation," Departmental Working Papers 200419, Rutgers University, Department of Economics.
  16. James H. Stock & Mark W. Watson, 2001. "Forecasting output and inflation: the role of asset prices," Proceedings, Federal Reserve Bank of San Francisco, issue Mar.
  17. Kenneth F. Wallis, 2005. "Combining Density and Interval Forecasts: A Modest Proposal," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 67(s1), pages 983-994, December.
  18. repec:oup:restud:v:74:y:2007:i:3:p:763-789 is not listed on IDEAS
  19. Diebold, Francis X & Gunther, Todd A & Tay, Anthony S, 1998. "Evaluating Density Forecasts with Applications to Financial Risk Management," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(4), pages 863-83, November.
  20. Berkowitz, Jeremy, 2001. "Testing Density Forecasts, with Applications to Risk Management," Journal of Business & Economic Statistics, American Statistical Association, vol. 19(4), pages 465-74, October.
  21. Sangjoon Kim & Neil Shephard & Siddhartha Chib, 1998. "Stochastic Volatility: Likelihood Inference and Comparison with ARCH Models," Review of Economic Studies, Oxford University Press, vol. 65(3), pages 361-393.
  22. Christian Kascha & Francesco Ravazzolo, 2008. "Combining inflation density forecasts," Working Paper 2008/22, Norges Bank.
  23. Valentina Corradi & Norman Swanson, 2006. "Predictive Density Evaluation. Revised," Departmental Working Papers 200621, Rutgers University, Department of Economics.
  24. Gianni Amisano & Raffaella Giacomini, 2005. "Comparing Density Forecsts via Weighted Likelihood Ratio Tests," Working Papers ubs0504, University of Brescia, Department of Economics.
  25. James Mitchell & Stephen G. Hall, 2005. "Evaluating, Comparing and Combining Density Forecasts Using the KLIC with an Application to the Bank of England and NIESR 'Fan' Charts of Inflation," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 67(s1), pages 995-1033, December.
  26. Tae-Hwy Lee & Yong Bao & Burak Saltoğlu, 2007. "Comparing density forecast models Previous versions of this paper have been circulated with the title, 'A Test for Density Forecast Comparison with Applications to Risk Management' since October 2003;," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 26(3), pages 203-225.
  27. Ida Wolden Bache & James Mitchell & Francesco Ravazzolo & Shaun P. Vahey, 2009. "Macro modelling with many models," Working Paper 2009/15, Norges Bank.
  28. repec:nsr:niesrd:337 is not listed on IDEAS
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