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Direct vs bottom-up approach when forecasting GDP: reconciling literature results with institutional practice

  • Paulo Soares Esteves
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    How should we forecast GDP? Should we forecast directly the overall GDP or aggregate the forecasts for each of its components using some level of disaggregation? The search for the answer continues to motivate several horse races between these two approaches. Nevertheless, independently of the results, institutions producing shortterm forecasts usually opt for a bottom-up approach. This paper uses an application for the euro area to show that the option between direct and bottom-up approaches as the level of disaggregation chosen by forecasters is not determined by the results of those races.

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    File URL: http://www.bportugal.pt/en-US/BdP%20Publications%20Research/wp201129.pdf
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    Paper provided by Banco de Portugal, Economics and Research Department in its series Working Papers with number w201129.

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    Date of creation: 2011
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    Handle: RePEc:ptu:wpaper:w201129
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    1. James H. Stock & Mark W. Watson, 1998. "Diffusion Indexes," NBER Working Papers 6702, National Bureau of Economic Research, Inc.
    2. Nikita Perevalov & Philipp Maier, 2010. "On the Advantages of Disaggregated Data: Insights from Forecasting the U.S. Economy in a Data-Rich Environment," Working Papers 10-10, Bank of Canada.
    3. Alberto Baffigi & Roberto Golinelli & Giuseppe Parigi, 2002. "Real-time GDP forecasting in the euro area," Temi di discussione (Economic working papers) 456, Bank of Italy, Economic Research and International Relations Area.
    4. Fagan, Gabriel & Henry, Jérôme & Mestre, Ricardo, 2001. "An area-wide model (AWM) for the euro area," Working Paper Series 0042, European Central Bank.
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