Household disaggregation and forecasting in a regional econometric input–output model
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The overwhelming attention to disaggregation of the interindustry components of the regional economy has neglected the problems generated by the adoption of the representative household in the modeling of economic impacts and forecasting in many regional economic models. Drawing on a recently modified regional econometric input–output model (REIM) for the Chicago metropolitan region in which households were disaggregated by age (Kim et al., Econ Syst Res. doi:10.1080/09535314.2014.991778, 2014), this paper provides an assessment of the differences generated by consumption of a representative and disaggregated households using data at the corresponding level of aggregation. The results reveal that the total effects of disaggregation that can be ascribed to population ageing vary by a much smaller extent than those generated by model specification and data. The disaggregate REIM with heterogeneous households by age yields smaller RMSEs than the aggregate REIM with a representative household, but a statistical testing suggests that forecasting gains from disaggregation are modest compared to the aggregate model.