Econometric modeling at mixed frequencies

Article type: Research Article

Authors: Klein, Lawrence R.^{a; *} | Kushnirsky, Fyodor I.^b

Affiliations: [a] Department of Economics, University of Pennsylvania, Philadelphia, PA 19104, USA. Tel.: +1 215 898 7713; E-mail: lrk@econ.upenn.edu | [b] Department of Economics, Temple University, Philadelphia, PA 19122, USA. Tel.: +1 215 204 5021; E-mail: fikush@temple.edu

Correspondence: [*] Corresponding author

Abstract: We design a methodology for combining high frequency (e.g., monthly) and low frequency (e.g., annual) econometric systems. Our goal is to demonstrate how a high frequency model can be used for periodic adjustments of selected indicators in a low frequency model. The methodology includes a theoretical foundation, methods for the adjustment of model structures and properties, procedures for achieving mutually consistent solutions, and step-by-step applications. The computational procedures are based on: (a) employment of a loss function in order to force the solution of the low frequency model to come close to the solution of the high frequency model and (b) obtaining a joint solution by inserting the values of key variables exogenously from the high into the low frequency model. To illustrate the application, we use simplified monthly and annual macroeconometric models for Ukraine. We also demonstrate a convenient computational procedure for solving a model that combines econometric and input-output structures having the same frequency.

DOI: 10.3233/JEM-2005-0258

Journal: Journal of Economic and Social Measurement, vol. 30, no. 4, pp. 251-277, 2005