Forecasting Brazilian Inflation by Its Aggregate and Disaggregated Data: A Test of Predictive Power by Forecast Horizon

28 Pages Posted: 10 Feb 2013 Last revised: 25 Feb 2016

See all articles by Thiago Carlos

Thiago Carlos

UBS AG - UBS Brazil Broker Dealer

Emerson Fernandes Marçal

Sao Paulo School of Economics - FGV

Date Written: February 24, 2016

Abstract

This work aims to compare the forecast efficiency of different types of methodologies applied to Brazilian consumer inflation (IPCA). We will compare forecasting models using disaggregated and aggregated data from IPCA over twelve months ahead. We used IPCA in a monthly basis, over the period between January 1996 to March 2012. Out-of-sample analysis will be made through the period of January 2008 to March 2012. The disaggregated models were estimated by SARIMA and will have different levels of disaggregation from IPCA as groups and items, as well as disaggregation with more economic sense used by Brazilian Central Bank as: I) services, monitored prices, food and industrials and II) durables, non-durables, semi durables, services and monitored prices. Aggregated models will be estimated by time series techniques as SARIMA, state-space structural models and Markov-switching. The forecasting accuracy among models will be made by the selection model procedure known as Model Confidence Set (Hansen et al. (2011)). We were able to find evidence of forecast accuracy gains in models using more disaggregated rather than aggregate data.

Keywords: Inflation, forecasting, ARIMA, space-state model, Markov-switching, Model Confidence Set

JEL Classification: C53, E31, C52

Suggested Citation

Carlos, Thiago and Marçal, Emerson Fernandes, Forecasting Brazilian Inflation by Its Aggregate and Disaggregated Data: A Test of Predictive Power by Forecast Horizon (February 24, 2016). Available at SSRN: https://ssrn.com/abstract=2214726 or http://dx.doi.org/10.2139/ssrn.2214726

Thiago Carlos

UBS AG - UBS Brazil Broker Dealer ( email )

Av. Brigadeiro Faria Lima, 4440 - 7º andar
São Paulo, 04538-132
Brazil

Emerson Fernandes Marçal (Contact Author)

Sao Paulo School of Economics - FGV ( email )

Rua Itapeva 286 10 andar
São Paulo, São Paulo 01332-000
Brazil
551137993382 (Phone)

HOME PAGE: http://cemap.fgv.br/en/emerson-marcal-en

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