Generating density nowcasts for US GDP growth with deep learning: Bayes by Backprop and Monte Carlo dropout
<|reference_start|>Generating density nowcasts for US GDP growth with deep learning: Bayes by Backprop and Monte Carlo dropout: Recent results in the literature indicate that artificial neural networks (ANNs) can outperform the dynamic factor model (DFM) in terms of the accuracy of GDP nowcasts. Compared to the DFM, the performance advantage of these highly flexible, nonlinear estimators is particularly evident in periods of recessions and structural breaks. From the perspective of policy-makers, however, nowcasts are the most useful when they are conveyed with uncertainty attached to them. While the DFM and other classical time series approaches analytically derive the predictive (conditional) distribution for GDP growth, ANNs can only produce point nowcasts based on their default training procedure (backpropagation). To fill this gap, first in the literature, we adapt two different deep learning algorithms that enable ANNs to generate density nowcasts for U.S. GDP growth: Bayes by Backprop and Monte Carlo dropout. The accuracy of point nowcasts, defined as the mean of the empirical predictive distribution, is evaluated relative to a naive constant growth model for GDP and a benchmark DFM specification. Using a 1D CNN as the underlying ANN architecture, both algorithms outperform those benchmarks during the evaluation period (2012:Q1 -- 2022:Q4). Furthermore, both algorithms are able to dynamically adjust the location (mean), scale (variance), and shape (skew) of the empirical predictive distribution. The results indicate that both Bayes by Backprop and Monte Carlo dropout can effectively augment the scope and functionality of ANNs, rendering them a fully compatible and competitive alternative for classical time series approaches.<|reference_end|>
@article{németh2024generating,
    title={Generating density nowcasts for U.S. GDP growth with deep learning:
  Bayes by Backprop and Monte Carlo dropout},
    author={Krist'of N'emeth, D'aniel Hadh'azi},
    journal={arXiv preprint arXiv:2405.15579},
    year={2024},
    archivePrefix={arXiv},
    eprint={2405.15579},
    primaryClass={econ.EM cs.AI cs.LG}
}