The role of money in DSGE models: a forecasting perspective

Petre Caraiani

Journal of Macroeconomics, 2016, vol. 47, issue PB, 315-330

Abstract: This paper studies the importance of money in a New Keynesian model by considering the forecasting performance of DSGE models both without and with money. While the estimation results are in line with previous studies, favoring the inclusion of money mostly in the form of portfolio adjustment and policy effects, a few interesting results emerge with respect to the accuracy of forecasts. Along with the various filtering methods and forecasting methods used (both recursive and rolling), in many cases money tends to improve the forecasts, either for point forecasts, density forecasts or both. However, the detrending method seems to influence the particular findings. Paradoxically, the absence of a portfolio adjustment costs channel tends to generally improve the accuracy of forecasts.

Keywords: DSGE; Money; Forecasting (search for similar items in EconPapers)
JEL-codes: E32 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jmacro:v:47:y:2016:i:pb:p:315-330

DOI: 10.1016/j.jmacro.2015.10.001

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