Forecasting Aggregated Moving Average Processes with an Application to the Euro Area Real Interest Rate

This paper focuses on the contemporaneous aggregation of moving average processes. It is shown that aggregating across second (or first)‐order (integrated) moving average processes leads to a macro process whose parameters are exact functions of the parameters of its generation process. Similar results are obtained at single equation level when a vector moving average framework is considered. In addition, the out‐of‐sample forecasting properties of aggregate and disaggregate procedures to forecast the aggregate variable are provided. Moreover, it is shown that the condition of equality of aggregate and disaggregate predictors is not necessary for the equality of their mean squared errors. Finally, an application to the euro area real interest rate is presented and discussed. Copyright © 2011 John Wiley & Sons, Ltd.