Thursday, January 21, 2021

Mixtures of Predictive Densities

Here's a new one, with Minchul Shin and Boyuan Zhang, "On the Aggregation of Probability Assessments: Regularized Mixtures of Predictive Densities for Eurozone Inflation and Real Interest Rates".

We propose methods for constructing regularized mixtures of density forecasts, exploring a variety of objectives and regularization penalties, and using them in a substantive exploration of Eurozone inflation and real interest rate density forecasts. The coolest thing is seeing what the regularization actually does. It has very different effects before and after the great recession. From the Great Recession onward, regularization moves density forecast probability mass from the centers to the tails, correcting for overconfidence. And it does so in real time, with no look-ahead cheating...

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