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Constructing Optimal Density Forecasts from Point Forecast Combinations

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  • Luiz Renato Regis de Oliveira Lima
  • Wagner Piazza Gaglianone

Abstract

Decision makers often observe point forecasts of the same variable computed, for instance, by commercial banks, IMF, World Bank, but the econometric models used by such institutions are unknown. This paper shows how to use the information available at point forecasts to compute optimal density forecasts. Our idea builds upon the combination of point forecasts under general loss functions and unknonwn forecast error distributions. We use real-time data to forecast the density of future in‡ation in the U.S. and our results indicate that the proposed method materially improves the real-time accuracy of density forecasts vis-à-vis the ones obtained from the (unknown) individual. econometric models.

Suggested Citation

  • Luiz Renato Regis de Oliveira Lima & Wagner Piazza Gaglianone, 2012. "Constructing Optimal Density Forecasts from Point Forecast Combinations," Série Textos para Discussão (Working Papers) 5, Programa de Pós-Graduação em Economia - PPGE, Universidade Federal da Paraíba.
  • Handle: RePEc:ppg:ppgewp:5
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    References listed on IDEAS

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    More about this item

    Keywords

    forecast combination; quantile regression; density forecast;
    All these keywords.

    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation

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