Taming Data‐Driven Probability Distributions

We propose a deep learning approach to probabilistic forecasting of macroeconomic and financial time series. By allowing complex time series patterns to be learned from a data‐rich environment, our approach is useful for decision making that depends on the uncertainty of a large number of economic outcomes. In particular, it is informative for agents facing asymmetric dependence of their loss on the outcomes of possibly non‐Gaussian and nonlinear variables. We demonstrate the usefulness of the proposed approach on two different datasets where a machine learns patterns from the data. First, we illustrate the gains in predicting stock return distributions that are heavy tailed and asymmetric. Second, we construct macroeconomic fan charts that reflect information from a high‐dimensional dataset.