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Forecasting Contemporaneous Aggregates with Stochastic Aggregation Weights

  • Ralf Brueggemann
  • Helmut Luetkepohl

Many contemporaneously aggregated variables have stochasticaggregation weights. We compare different forecasts for such variables including univariate forecasts of the aggregate, a multivariate forecast of the aggregate that uses information from the disaggregate components, a forecast which aggregates a multivariate forecast of the disaggregate components and the aggregation weights, and a forecast which aggregates univariate forecasts for individual disaggregate components and the aggregation weights. In empirical illustrations based on aggregate GDP and money growth rates, we find forecast efficiency gains from using the information in the stochastic aggregation weights. A Monte Carlo study confirms that using the information on stochastic aggregation weights explicitly may result in forecast mean squared error reductions.

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Paper provided by European University Institute in its series Economics Working Papers with number ECO2011/17.

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Date of creation: 2011
Date of revision:
Handle: RePEc:eui:euiwps:eco2011/17
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  17. Lutkepohl, Helmut, 1984. "Linear transformations of vector ARMA processes," Journal of Econometrics, Elsevier, vol. 26(3), pages 283-293, December.
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