Smooth Forecast Reconciliation

Download or read book Smooth Forecast Reconciliation written by Mr. Sakai Ando and published by International Monetary Fund. This book was released on 2024-03-22 with total page 28 pages. Available in PDF, EPUB and Kindle. Book excerpt: How to make forecasts that (1) satisfy constraints, like accounting identities, and (2) are smooth over time? Solving this common forecasting problem manually is resource-intensive, but the existing literature provides little guidance on how to achieve both objectives. This paper proposes a new method to smooth mixed-frequency multivariate time series subject to constraints by integrating the minimum-trace reconciliation and Hodrick-Prescott filter. With linear constraints, the method has a closed-form solution, convenient for a high-dimensional environment. Three examples show that the proposed method can reproduce the smoothness of professional forecasts subject to various constraints and slightly improve forecast performance.