Forecasting Industrial Production Using Its Aggregated and Disaggregated Series or a Combination of Both: Evidence from One Emerging Market Economy

In this paper, we address whether using a disaggregated series or combining an aggregated and disaggregated series improves the forecasting of the aggregated series compared to using the aggregated series alone. We used econometric techniques, such as the weighted lag adaptive least absolute shrinkage and selection operator, and Exponential Triple Smoothing (ETS), as well as the Autometrics algorithm to forecast industrial production in Brazil one to twelve months ahead. This is the novelty of the work, as is the use of the average multi-horizon Superior Predictive Ability (aSPA) and uniform multi-horizon Superior Predictive Ability (uSPA) tests, used to select the best forecasting model by combining different horizons. Our sample covers the period from January 2002 to February 2020. The disaggregated ETS has a better forecast performance when forecasting horizons that are more than one month ahead using the mean square error, and the aggregated ETS has better forecasting ability for horizons equal to 1 and 2. The aggregated ETS forecast does not contain information that is useful for forecasting industrial production in Brazil beyond the information already found in the disaggregated ETS forecast between two and twelve months ahead.