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date: 23 April 2024

The Evolution of Forecast Density Combinations in Economicslocked

The Evolution of Forecast Density Combinations in Economicslocked

  • Knut Are Aastveit, Knut Are AastveitNorges Bank
  • James Mitchell, James MitchellWarwick Business School, University of Warwick
  • Francesco RavazzoloFrancesco RavazzoloFaculty of Economics and Management, Free University of Bozen-Bolzano
  •  and Herman K. van DijkHerman K. van DijkDepartment of Econometrics, Erasmus University Rotterdam


Increasingly, professional forecasters and academic researchers in economics present model-based and subjective or judgment-based forecasts that are accompanied by some measure of uncertainty. In its most complete form this measure is a probability density function for future values of the variable or variables of interest. At the same time, combinations of forecast densities are being used in order to integrate information coming from multiple sources such as experts, models, and large micro-data sets. Given the increased relevance of forecast density combinations, this article explores their genesis and evolution both inside and outside economics. A fundamental density combination equation is specified, which shows that various frequentist as well as Bayesian approaches give different specific contents to this density. In its simplest case, it is a restricted finite mixture, giving fixed equal weights to the various individual densities. The specification of the fundamental density combination equation has been made more flexible in recent literature. It has evolved from using simple average weights to optimized weights to “richer” procedures that allow for time variation, learning features, and model incompleteness. The recent history and evolution of forecast density combination methods, together with their potential and benefits, are illustrated in the policymaking environment of central banks.


  • Econometrics, Experimental and Quantitative Methods
  • Financial Economics
  • Macroeconomics and Monetary Economics

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