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

40 Pages Posted: 2 Dec 2003

See all articles by Kirstin Hubrich

Kirstin Hubrich

Board of Governors of the Federal Reserve System

Date Written: August 2003

Abstract

Monitoring and forecasting price developments in the euro area is essential in the light of the second pillar of the ECB's monetary policy strategy. This study analyses whether the forecasting accuracy of forecasting 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.

Keywords: Euro area inflation, HICP subindex forecast aggregation, linear time series models

JEL Classification: E31, E37, C53, C32

Suggested Citation

Hubrich, Kirstin, Forecasting Euro Area Inflation: Does Aggregating Forecasts by Hicp Component Improve Forecast Accuracy? (August 2003). ECB Working Paper No. 247. Available at SSRN: https://ssrn.com/abstract=457319

Kirstin Hubrich (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

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