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Forecasting Chilean Inflation From Disaggregate Components

  • Marcus Cobb

In this paper an exercise is performed to determine the usefulness of utilizing disaggregated price data to forecast headline inflation more accurately. A number of methods based on univariate and multivariate autoregressive models are used for different levels of disaggregation for a period of stable inflation and a period of accelerating inflation. The results show that a certain level of disaggregation could be beneficial when inflation is not low and stable, suggesting that under certain circumstances the disaggregate approach captures the underlying dynamics of inflation more efficiently. The benefits are noticeable for the three-, six- and twelve-month horizons, as opposed to the one-month horizon, where improvements seem negligible.

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Paper provided by Central Bank of Chile in its series Working Papers Central Bank of Chile with number 545.

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Date of creation: Dec 2009
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Handle: RePEc:chb:bcchwp:545
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  1. Pär Österholm & Erik Hjalmarsson, 2007. "Testing for Cointegration Using the Johansen Methodology When Variables Are Near-Integrated," IMF Working Papers 07/141, International Monetary Fund.
  2. Francis X. Diebold & Robert S. Mariano, 1994. "Comparing Predictive Accuracy," NBER Technical Working Papers 0169, National Bureau of Economic Research, Inc.
  3. Aigner, Dennis J & Goldfeld, Stephen M, 1974. "Estimation and Prediction from Aggregate Data when Aggregates are Measured More Accurately than Their Components," Econometrica, Econometric Society, vol. 42(1), pages 113-34, January.
  4. Inoue, Atsushi & Kilian, Lutz, 2003. "On the selection of forecasting models," Working Paper Series 0214, European Central Bank.
  5. James H. Stock & Mark W. Watson, 2007. "Erratum to "Why Has U.S. Inflation Become Harder to Forecast?"," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(7), pages 1849-1849, October.
  6. James H. Stock & Mark W. Watson, 2006. "Why Has U.S. Inflation Become Harder to Forecast?," NBER Working Papers 12324, National Bureau of Economic Research, Inc.
  7. 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.
  8. Findley, David F, et al, 1998. "New Capabilities and Methods of the X-12-ARIMA Seasonal-Adjustment Program," Journal of Business & Economic Statistics, American Statistical Association, vol. 16(2), pages 127-52, April.
  9. Timmermann, Allan, 2006. "Forecast Combinations," Handbook of Economic Forecasting, Elsevier.
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