Evaluating, comparing and combining density forecasts using the KLIC with an application to the Bank of England and NIESR “fan” charts of inflation∗

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.