Density Forecasts Based on Disaggregate Data: Nowcasting Polish Inflation
Keywordsprediction, model comparison, density forecasting, inflation, VAR models, shrinkage
AbstractThe paper investigates gains in performance of density forecasts from models using disaggregate data when forecasting aggregate series. The problem is considered within a restricted VAR framework with alternative sets of exclusion restrictions. Empirical analysis of Polish CPI m-o-m inflation rate (using its 14 sub-categories for disaggregate modelling) is presented. Exclusion restrictions are shown to improve density forecasting performance (as evaluated using log-score and CRPS criteria) relatively to aggregate and also disaggregate unrestricted models.
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