Forecasting Euro Area Inflation: Does Aggregating Forecasts by Hicp Component Improve Forecast Accuracy?

By K. Hubrich. 2003

274 citations recorded by the source corpus.

Monitoring and forecasting price developments in the euro area is essential in light of the two-pillar framework of the ECB's monetary policy strategy. This study analyses whether the accuracy of forecasts of aggregate euro area inflation can be improved by aggregating forecasts of subindices of the Harmonized Index of Consumer Prices (HICP) as opposed to forecasting the aggregate HICP directly. The analysis includes univariate and multivariate linear time series models and distinguishes between different forecast horizons, HICP components and inflation measures. Various model selection procedures are employed to select models for the aggregate and the disaggregate components. The results indicate that aggregating forecasts by component does not necessarily help forecast year-on-year inflation twelve months ahead.

Subfields: Economics and Econometrics

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Citations in the corpus

Reality Checks and Comparisons of Nested Predictive Models (2012, background): “Hubrich, Kirstin, and Kenneth D. West (2010), “Forecast Evaluation of Small Nested Model Sets,” Journal of Applied Econometrics 25, 574-594.”
Regional Inflation Dynamics within and Across Euro Area Countries and a Comparison with the Us (2006, methodology): “Engel & Rogers (2004), Beck & Weber (2005), Hubrich (2005) and Hendry & Hubrich (2006) and Marcellino, Stock & Watson (2003)). We shed additional light on inflation dynamics and on the issue of the effect of EMU on inflation rates in the euro area, not only across countries or sectors but also acros”