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Forecasting Contemporaneous Aggregates with Stochastic Aggregation Weights

Author

Listed:
  • Ralf Brüggemann

    () (Department of Economics, University of Konstanz, Germany)

  • Helmut Lütkepohl

    () (Department of Economics, European University Institute, Italy)

Abstract

Many contemporaneously aggregated variables have stochastic aggregation 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.

Suggested Citation

  • Ralf Brüggemann & Helmut Lütkepohl, 2011. "Forecasting Contemporaneous Aggregates with Stochastic Aggregation Weights," Working Paper Series of the Department of Economics, University of Konstanz 2011-23, Department of Economics, University of Konstanz.
  • Handle: RePEc:knz:dpteco:1123
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    References listed on IDEAS

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    More about this item

    Keywords

    Aggregation; autoregressive process; mean squared error;

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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