Evaluating, Comparing and Combining Density Forecasts Using the Klic with an Application to the Bank of England and Niesr 'Fan' Charts of Inflation

39 Pages Posted: 3 Feb 2006

See all articles by James Mitchell

James Mitchell

National Institute of Economic and Social Research (NIESR)

Stephen G. Hall

University of Leicester - Department of Economics

Abstract

This paper proposes and analyses the Kullback-Leibler information criterion (KLIC) as a unified statistical tool to evaluate, compare and combine density forecasts. Use of the KLIC is particularly attractive, as well as operationally convenient, given its equivalence with the widely used Berkowitz likelihood ratio test for the evaluation of individual density forecasts that exploits the probability integral transforms. Parallels with the comparison and combination of point forecasts are made. This and related Monte Carlo experiments help draw out properties of combined density forecasts. We illustrate the uses of the KLIC in an application to two widely used published density forecasts for UK inflation, namely the Bank of England and NIESR 'fan' charts.

JEL Classification: C53, E37

Suggested Citation

Mitchell, James and Hall, Stephen G., Evaluating, Comparing and Combining Density Forecasts Using the Klic with an Application to the Bank of England and Niesr 'Fan' Charts of Inflation. Oxford Bulletin of Economics & Statistics, Vol. 67, No. S1, pp. 995-1033, December 2005, Available at SSRN: https://ssrn.com/abstract=869101 or http://dx.doi.org/10.1111/j.1468-0084.2005.00149.x

James Mitchell (Contact Author)

National Institute of Economic and Social Research (NIESR) ( email )

2 Dean Trench Street
Smith Square
London SW1P 3HE
United Kingdom

Stephen G. Hall

University of Leicester - Department of Economics ( email )

Department of Economics
Leicester LE1 7RH, Leicestershire LE1 7RH
United Kingdom

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