Internal Validation of Temporal Disaggregation: A Cloud Chamber Approach

Summary Temporal disaggregation is a recurrent problem in applied econometrics. This paper proposes a novel test approach for checking internal consistency of the disaggregation procedure. This test can serve as a substitute for external validations which deems useful when disaggregating under data poor conditions. The test builds on Chow and Lin’s 1971 disaggregation model and rests on the known parameter decay triggered by the temporal aggregation. A simulation study shows that the test indeed provides useful information. Temporal disaggregation of Swiss GDP figures illustrate the approach.