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Density characteristics and density forecast performance: a panel analysis

Author

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  • Kenny, Geoff
  • Kostka, Thomas
  • Masera, Federico

Abstract

In this paper, we exploit micro data from the ECB Survey of Professional Forecasters (SPF) to examine the link between the characteristics of macroeconomic density forecasts (such as their location, spread, skewness and tail risk) and density forecast performance. Controlling for the effects of common macroeconomic shocks, we apply cross-sectional and fixed effect panel regressions linking such density characteristics and density forecast performance. Our empirical results suggest that many macroeconomic experts could systematically improve their density performance by correcting a downward bias in their variances. Aside from this shortcoming in second moment characteristics of the individual densities, other higher moment features, such as skewness or variation in the degree of probability mass given to the tails of the predictive distributions tend - as a rule - not to contribute significantly to enhancing individual density forecast performance. JEL Classification: C22, C53

Suggested Citation

  • Kenny, Geoff & Kostka, Thomas & Masera, Federico, 2014. "Density characteristics and density forecast performance: a panel analysis," Working Paper Series 1679, European Central Bank.
  • Handle: RePEc:ecb:ecbwps:20141679
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Clements, Michael P., 2018. "Are macroeconomic density forecasts informative?," International Journal of Forecasting, Elsevier, vol. 34(2), pages 181-198.
    2. Ambrocio, Gene, 2017. "The real effects of overconfidence and fundamental uncertainty shocks," Research Discussion Papers 37/2017, Bank of Finland.
    3. Constantin Bürgi & Tara M. Sinclair, 2017. "A nonparametric approach to identifying a subset of forecasters that outperforms the simple average," Empirical Economics, Springer, vol. 53(1), pages 101-115, August.
    4. Geoff Kenny & Thomas Kostka & Federico Masera, 2015. "Can Macroeconomists Forecast Risk? Event-Based Evidence from the Euro-Area SPF," International Journal of Central Banking, International Journal of Central Banking, vol. 11(4), pages 1-46, December.
    5. repec:spr:empeco:v:53:y:2017:i:1:d:10.1007_s00181-017-1228-3 is not listed on IDEAS
    6. Victor Lopez-Perez, 2016. "Macroeconomic Forecast Uncertainty In The Euro Area," Equilibrium. Quarterly Journal of Economics and Economic Policy, Institute of Economic Research, vol. 11(1), pages 9-41, March.
    7. Sami Oinonen & Maritta Paloviita, 2017. "How Informative are Aggregated Inflation Expectations? Evidence from the ECB Survey of Professional Forecasters," Journal of Business Cycle Research, Springer;Centre for International Research on Economic Tendency Surveys (CIRET), vol. 13(2), pages 139-163, November.
    8. Kenny, Geoff & Dovern, Jonas, 2017. "The long-term distribution of expected inflation in the euro area: what has changed since the great recession?," Working Paper Series 1999, European Central Bank.

    More about this item

    Keywords

    density forecasting; forecast evaluation; Panel data; survey of professional forecasters;

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods

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