Dynamic Bayesian regression quantile synthesis for forecasting outlook-at-risk

Abstract: This paper proposes dynamic Bayesian regression quantile synthesis (DRQS), a novel method for quantile forecasting within the Bayesian predictive synthesis (BPS) framework designed to combine quantile-specific information from multiple agent models. While existing BPS approaches primarily focus on mean forecasting, our method directly targets the conditional quantiles of the response variable by utilizing the asymmetric Laplace distribution for the synthesis function. The resulting framework can be interpreted as a dynamic quantile linear model with latent predictors. We extend the univariate DRQS to a multivariate setting-factor DRQS (FDRQS)-by introducing a time-varying latent factor structure for the synthesis weights. This allows the model to leverage cross-sectional dependencies and shared information across multiple time series simultaneously. We develop an efficient Markov chain Monte Carlo (MCMC) algorithm for posterior inference, utilizing data augmentation and forward-filtering backward-sampling. Empirical applications to US inflation and global GDP growth demonstrate the improved performance of the proposed methods for quantile forecasting. In particular, FDRQS exhibits superior resilience during periods of extreme economic stress, such as the COVID-19 pandemic, by adaptively rebalancing agent contributions and capturing emergent global dependencies.