Putting the New Keynesian DSGE model to the real-time forecasting test

Marcin Kolasa, Michał Rubaszek and Paweł Skrzypczyński

No 1110, Working Paper Series from European Central Bank

Abstract: Dynamic stochastic general equilibrium models have recently become standard tools for policy-oriented analyses. Nevertheless, their forecasting properties are still barely explored. We fill this gap by comparing the quality of real-time forecasts from a richly-specified DSGE model to those from the Survey of Professional Forecasters, Bayesian VARs and VARs using priors from a DSGE model. We show that the analyzed DSGE model is relatively successful in forecasting the US economy in the period of 1994-2008. Except for short-term forecasts of inflation and interest rates, it is as good as or clearly outperforms BVARs and DSGE-VARs. Compared to the SPF, the DSGE model generates better output forecasts at longer horizons, but less accurate short-term forecasts for interest rates. Conditional on experts' now casts, however, the forecasting power of the DSGE turns out to be similar or better than that of the SPF for all the variables and horizons. JEL Classification: C11, C32, C53, D58, E17

Keywords: Bayesian VAR; DSGE; forecasting; real-time data; SPF (search for similar items in EconPapers)
Date: 2009-11
New Economics Papers: this item is included in nep-cba, nep-dge, nep-ecm and nep-for
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: Putting the New Keynesian DSGE Model to the Real-Time Forecasting Test (2012)
Journal Article: Putting the New Keynesian DSGE Model to the Real‐Time Forecasting Test (2012)
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