Open economy forecasting with a DSGE-VAR: Head to head with the RBNZ published forecasts

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

International Journal of Forecasting, 2011, vol. 27, issue 2, 512-528

Abstract: We construct a DSGE-VAR model for competing head to head with the long history of published forecasts of the Reserve Bank of New Zealand. We also construct a Bayesian VAR model with a Minnesota prior for forecast comparison. The DSGE-VAR model combines a structural DSGE model with a statistical VAR model based on the in-sample fit over the majority of New Zealand's inflation-targeting period. We evaluate the real-time out-of-sample forecasting performance of the DSGE-VAR model, and show that the forecasts from the DSGE-VAR are competitive with the Reserve Bank of New Zealand's published, judgmentally-adjusted forecasts. The Bayesian VAR model with a Minnesota prior also provides a competitive forecasting performance, and generally, with a few exceptions, out-performs both the DSGE-VAR and the Reserve Bank's own forecasts.

Keywords: DSGE; Vector; autoregression; models; Macroeconomic; forecasting; Open; economy; Bayesian; methods (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (29)

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