What Do We Know About Comparing Aggregate And Disaggregate Forecasts?

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Executive Summary

This paper compares the performance of "Aggregate" and "Disaggregate" predictors in forecasting contemporaneously aggregated vector ARMA processes. An aggregate predictor is built by forecasting directly the aggregate process, as it results from contemporaneous aggregation of the data generating vector process. A disaggregate predictor is obtained by aggregating univariate forecasts for the individual components of the data generating vector process. The necessary and sufficient condition for the equality of mean squared errors associated with the two competing methods is provided in the bivariate VMA (1) case.

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