Title: Forecasting aggregate household consumption and aggregate income: A simulation-based model selection approach
Authors: Robert Kunst - Institute for Advanced Studies (Austria) [presenting]
Adusei Jumah - Central University Accra (Ghana)
Abstract: Household consumption and disposable income provide a role-model example for error correction. On given national-accounts data, we explore whether and to what degree the cointegration properties benefit forecasting. It evolves that statistical evidence on cointegration is not always equivalent to better forecasting properties by the implied cointegrating structure. The exercise is conducted in the framework of simulation-based forecast-model selection. Apart from prediction by competing specifications to be selected from a small choice set, we also explore forecast combinations based on Bates-Granger weights constructed from a continuum in the same framework. The simulation-based method explicitly permits letting the forecast model choice depend on the intended time horizon of the forecast. The simulation-based approach permits the determination of the sample size, beyond which the more sophisticated model dominates with regard to its forecasting properties. The forecast combination experiments indicate a window of opportunity at a specific horizon, whereas pure strategies dominate at smaller and larger horizons.