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. We explore a variety of objectives and regularization penalties, and we use them in a substantive exploration of Eurozone inﬂation and real interest rate density forecasts. All individual inﬂation forecasters (even the ex post best forecaster) are outperformed by our regularized mixtures. From the Great Recession onward, the optimal regularization tends to move density forecasts’ probability mass from the centers to the tails, correcting for overconﬁdence.