Combining VAR and DSGE forecast densities
Ida Wolden Bache (),
Anne Sofie Jore (),
James Mitchell () and
Additional contact information
Ida Wolden Bache: Norges Bank
Anne Sofie Jore: Norges Bank
No 2009/23, Working Paper from Norges Bank
A popular macroeconomic forecasting strategy takes combinations across many models to hedge against instabilities of unknown timing; see (among others) Stock and Watson (2004), Clark and McCracken (2010), and Jore et al. (2010). Existing studies of this forecasting strategy exclude Dynamic Stochastic General Equilibrium (DSGE) models, despite the widespread use of these models by monetary policymakers. In this paper, we combine inflation forecast densities utilizing an ensemble system comprising many Vector Autoregressions (VARs), and a policymaking DSGE model. The DSGE receives substantial weight (for short horizons) provided the VAR components exclude structural breaks. In this case, the inflation forecast densities exhibit calibration failure. Allowing for structural breaks in the VARs reduces the weight on the DSGE considerably, and produces well-calibrated forecast densities for inflation.
Keywords: Ensemble modeling; Forecast densities; Forecast evaluation; VAR models; DSGE models (search for similar items in EconPapers)
JEL-codes: C32 C53 E37 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-dge, nep-ecm, nep-ets, nep-for and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations View citations in EconPapers (5) Track citations by RSS feed
Downloads: (external link)
Journal Article: Combining VAR and DSGE forecast densities (2011)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: http://EconPapers.repec.org/RePEc:bno:worpap:2009_23
Access Statistics for this paper
More papers in Working Paper from Norges Bank Contact information at EDIRC.
Series data maintained by ().