Forecasting Nonlinear Aggregates and Aggregates with Time-varying Weights

38 Pages Posted: 2 May 2010

See all articles by Helmut Luetkepohl

Helmut Luetkepohl

European University Institute; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: April 2010

Abstract

Despite the fact that many aggregates are nonlinear functions and the aggregation weights of many macroeconomic aggregates are time-varying, much of the literature on forecasting aggregates considers the case of linear aggregates with fixed, time-invariant aggregation weights. In this study a framework for nonlinear contemporaneous aggregation with possibly stochastic or time-varying weights is developed and different predictors for an aggregate are compared theoretically as well as with simulations. Two examples based on European unemployment and inflation series are used to illustrate the virtue of the theoretical setup and the forecasting results.

Keywords: forecasting, stochastic aggregation, autoregression, moving average, vector autoregressive process

JEL Classification: C32

Suggested Citation

Luetkepohl, Helmut, Forecasting Nonlinear Aggregates and Aggregates with Time-varying Weights (April 2010). CESifo Working Paper Series No. 3031, Available at SSRN: https://ssrn.com/abstract=1597622

Helmut Luetkepohl (Contact Author)

European University Institute ( email )

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CESifo (Center for Economic Studies and Ifo Institute)

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Munich, DE-81679
Germany

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