Open economy DSGE-VAR forecasting and policy analysis - head to head with the RBNZ published forecasts

Kirdan Lees, Troy D. Matheson () and Christie Smith ()

No DP2007/01, Reserve Bank of New Zealand Discussion Paper Series from Reserve Bank of New Zealand

Abstract: We evaluate the performance of an open economy DSGE-VAR model for New Zealand along both forecasting and policy dimensions. We show that forecasts from a DSGE-VAR and a 'vanilla' DSGE model are competitive with, and in some dimensions superior to, the Reserve Bank of New Zealand's official forecasts. We also use the estimated DSGE-VAR structure to identify optimal policy rules that are consistent with the Reserve Bank's Policy Targets Agreement. Optimal policy rules under parameter uncertainty prove to be relatively similar to the certainty case. The optimal policies react aggressively to inflation and contain a large degree of interest rate smoothing, but place a low weight on responding to output or the change in the nominal exchange rate.

JEL-codes: C51 E52 F41 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-dge, nep-ets, nep-for and nep-mac
Date: 2007-01
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Related works:
Working Paper: OPEN ECONOMY DSGE-VAR FORECASTING AND POLICY ANALYSIS: HEAD TO HEAD WITH THE RBNZ PUBLISHED FORECASTS (2007)
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Persistent link: http://EconPapers.repec.org/RePEc:nzb:nzbdps:2007/01

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