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Forecasting with DSGE models with financial frictions

Marcin Kolasa and Michał Rubaszek

No 40, Dynare Working Papers from CEPREMAP

Abstract: This paper compares the quality of forecasts from DSGE models with and without financial frictions. We find that accounting for financial market imperfections does not result in a uniform improvement in the accuracy of point forecasts during non-crisis times while the average quality of density forecast even deteriorates. In contrast, adding frictions in the housing market proves very helpful during the times of financial turmoil, overperforming both the frictionless benchmark and the alternative that incorporates financial frictions in the corporate sector. Moreover, we detect complementarities among the analyzed setups that can be exploited in the forecasting process.

Keywords: DSGE models; Financial frictions; Housing market (search for similar items in EconPapers)
JEL-codes: C11 C53 E44 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2014-06
New Economics Papers: this item is included in nep-dge, nep-for, nep-ias and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (18)

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Related works:
Journal Article: Forecasting using DSGE models with financial frictions (2015) Downloads
Working Paper: Forecasting with DSGE models with financial frictions (2013) Downloads
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