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Forecast densities for economic aggregates from disaggregate ensembles

Listed author(s):
  • 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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File URL: http://www.norges-bank.no/en/Published/Papers/Working-Papers/2010/WP-201002/
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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
Handle: RePEc:bno:worpap:2010_02
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