Forecasting with a Bayesian DSGE model: an application to the euro area
Frank Smets and
Raf Wouters ()
No 389, Working Paper Series from European Central Bank
In monetary policy strategies geared towards maintaining price stability conditional and unconditional forecasts of inflation and output play an important role. This paper illustrates how modern sticky-price dynamic stochastic general equilibrium models, estimated using Bayesian techniques, can become an additional useful tool in the forecasting kit of central banks. First, we show that the forecasting performance of such models compares well with a-theoretical vector autoregressions. Moreover, we illustrate how the posterior distribution of the model can be used to calculate the complete distribution of the forecast, as well as various inflation risk measures that have been proposed in the literature. Finally, the structural nature of the model allows computing forecasts conditional on a policy path. It also allows examining the structural sources of the forecast errors and their implications for monetary policy. Using those tools, we analyse macroeconomic developments in the euro area since the start of EMU. JEL Classification: E4, E5
Keywords: DSGE models; euro area; forecasting; monetary policy (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (107) Track citations by RSS feed
Downloads: (external link)
Journal Article: Forecasting with a Bayesian DSGE Model: An Application to the Euro Area (2004)
Working Paper: Forecasting with a Bayesian DSGE Model: An Application to the Euro Area (2004)
Working Paper: Forecasting with a Bayesian DSGE Model: an application to the euro area (2004)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:2004389
Access Statistics for this paper
More papers in Working Paper Series from European Central Bank 60640 Frankfurt am Main, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Official Publications ().