Evaluating point and density forecasts of DSGE models

Maik Wolters

MPRA Paper from University Library of Munich, Germany

Abstract: This paper investigates the accuracy of point and density forecasts of four DSGE models for inflation, output growth and the federal funds rate. Model parameters are estimated and forecasts are derived successively from historical U.S. data vintages synchronized with the Fed’s Greenbook projections. Point forecasts of some models are of similar accuracy as the forecasts of nonstructural large dataset methods. Despite their common underlying New Keynesian modeling philosophy, forecasts of different DSGE models turn out to be quite distinct. Weighted forecasts are more precise than forecasts from individual models. The accuracy of a simple average of DSGE model forecasts is comparable to Greenbook projections for medium term horizons. Comparing density forecasts of DSGE models with the actual distribution of observations shows that the models overestimate uncertainty around point forecasts.

Keywords: DSGE models; forecasting; model uncertainty; forecast combination; density forecasts; real-time data; Greenbook (search for similar items in EconPapers)
JEL-codes: C53 E0 E31 E32 E37 (search for similar items in EconPapers)
Date: 2012-01-23
New Economics Papers: this item is included in nep-cba, nep-dge, nep-for, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (26)

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