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Direct vs bottom-up approach when forecasting GDP: reconciling literature results with institutional practice
C32 - Time-Series Models
C53 - Forecasting and Other Model Applications
E27 - Forecasting and Simulation
How should we forecast GDP? Should we forecast directly the overall GDP or aggregate the forecasts for each of its components using some level of disaggregation? The search for the answer continues to motivate several horse races between these two approaches. Nevertheless, independently of the results, institutions producing shortterm forecasts usually opt for a bottom-up approach. This paper uses an application for the euro area to show that the option between direct and bottom-up approaches as the level of disaggregation chosen by forecasters is not determined by the results of those races.