Forecast Densities for Economic Aggregates from Disaggregate Ensembles

Francesco Ravazzolo, Shaun P. Vahey
2010 Social Science Research Network  
We extend the 'bottom up' approach for forecasting economic aggregates with disaggregates to probabilistic forecasting. Our methodology utilises a Linear Opinion Pool to combine the forecast densities from many disaggregate forecasting specifications, using weights based on the Continuous Ranked Probability Score. We also adopt a post-processing step prior to forecast combination. These methods are adapted from the meteorology literature; see, the discussions in Gneiting and Thorarinsdottir
more » ... 0) . In our application, we use our approach to forecast US Personal Consumption Expenditure inflation from 1990q1 to 2009q4. Our ensemble combining the evidence from 16 disaggregate PCE series outperforms an integrated moving average specification for aggregate inflation in terms of density forecasting.
doi:10.2139/ssrn.1668149 fatcat:5rwqh7mvkjgprmfao2z6tibg3q