Forecasting the Colombian Monthly Inflation One Step Ahead: A "Bottom to Top" Approach
DOI:
https://doi.org/10.46661/revmetodoscuanteconempresa.2688Keywords:
IPC, inflación, pronósticos, de abajo hacia arriba, Colombia, CPI, inflation, forecasts, "bottom to top"Abstract
The hierarchical structure of the Colombian Consumer Price Index (CPI) makes possible to calculate inflation as a linear combination of its subcomponents. We use SARIMA models to forecast each component of CPI and construct an forecast of inflation using a lineal combination of the forecasts of these components, i.e. a "bottom to top" approach. In this paper, we asses the out-of-sample performance of the one-step ahead forecast of 12 "bottom to top" methodologies. These methods are compared with an aggregate forecast using a SARIMA model. Our results show that a "bottom to top" method to forecast inflation outperforms an aggregate approach for the case of monthly inflation in Colombia.
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