Affiliations: [a] Department of Economics, University of Pennsylvania,
Philadelphia, PA 19104, USA. Tel.: +1 215 898 7713; E-mail:
[email protected]
| [b] Department of Economics, Temple University,
Philadelphia, PA 19122, USA. Tel: +1 251 204 5021; E-mail:
[email protected]
| [c] Department of Economics, Temple University,
Philadelphia, PA 19122, USA. Tel: +1 251 204 6113; E-mail:
[email protected]
Correspondence:
[*]
Corresponding author
Abstract: In a two-part paper, we apply to the Mexican economy the methodology of
forecasting at mixed frequencies developed by Klein and Kushnirsky [2]. We
construct two macroeconometric models for Mexico – high frequency, with monthly
observations, and low frequency, with annual observations. Our methodology
demonstrates how the high frequency model can be used for periodic adjustments
of selected key indicators in the 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) construction of "exact" joint solutions, with values of key variables in the
low frequency model imported from the high frequency model. We illustrate the
applications by generating: (a) independent solutions of the high frequency and
low frequency models; (b) solutions of the low frequency model with the use of a
loss function; and (c) solutions of the low frequency model with key variables
such as GDP and the price index imported from the high frequency model.
