Working Paper: CEPR ID: DP14267
Authors: Barbara Rossi; Gergely Ganics; Tatevik Sekhposyan
Abstract: Surveys of professional forecasters produce precise and timely point forecasts for key macroeconomic variables. However, the accompanying density forecasts are not as widely utilized, and there is no consensus about their quality. This is partly because such surveys are often conducted for “fixed events”. For example, in each quarter, panelists are asked to forecast output growth and inflation for the current calendar year and the next, implying that the forecast horizon changes with each survey round. The fixed-event nature limits the usefulness of survey density predictions for policymakers and market participants, who often wish to characterize uncertainty a fixed number of periods ahead (“fixed-horizon”). Is it possible to obtain fixed-horizon density forecasts using the available fixed-event ones? We propose a density combination approach that weights fixed-event density forecasts according to a uniformity of the probability integral transform criterion, aiming at obtaining a correctly calibrated fixed-horizon density forecast. Using data from the US Survey of Professional Forecasters, we show that our combination method produces competitive density forecasts relative to widely used alternatives based on historical forecast errors or Bayesian VARs. Thus, our proposed fixed-horizon predictive densities are a new and useful tool for researchers and policymakers.
Keywords: Survey of Professional Forecasters; Density Forecasts; Forecast Combination; Predictive Density; Probability Integral Transform; Uncertainty; Real-time
JEL Codes: C13; C32; C53
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| fixed-event density forecasts (C53) | fixed-horizon density forecasts (C53) |
| density combination approach (C69) | correctly calibrated fixed-horizon density forecasts (C53) |
| current and next-year density forecasts (C53) | fixed-horizon predictive densities (C53) |
| fixed-horizon predictive densities (C53) | competitive density forecasts (Q47) |
| density combination approach (C69) | predictive densities for output growth and inflation (O42) |