Density Forecasting

Predictive-density and density-combination notes for Macro by Mark Labs.

Density forecasts describe a probability distribution for future outcomes, not just a point estimate. The lab uses different density paths depending on what the source model can support.

Density Sources

  • Bootstrap density uses residual moving-block bootstrap paths around a point forecast.
  • Bayesian density uses posterior predictive draws when the model provides posterior samples.
  • State-space density uses simulation from the state-space representation when that engine supplies it.
  • Approximate Gaussian density uses a point forecast and residual scale. It is labeled approximate.
  • External density artifacts can enter as normal, quantile, or kernel-grid inputs when the contract is valid.

Scoring

The lab reports proper scoring and calibration summaries where aligned actuals are available:

  • CRPS, where lower is better
  • log score, where higher is better
  • negative log score, where lower is better
  • PIT values and PIT histograms

Recalibration

Where supported, PIT values can feed beta recalibration. Recalibration should be estimated on validation data and judged on a separate test window.

Limits

Normal residual bands are useful as a baseline, but they are not the same as a full model-native predictive distribution. They can understate skew, heavy tails, regime shifts, or parameter uncertainty.

References

  • Diebold, Gunther, and Tay, 1998.
  • Gneiting and Raftery, 2007.
  • Ranjan and Gneiting, 2010.
  • Gneiting and Ranjan, 2013.