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Forecasting in a Non-Linear DSGE Model

Sergey Ivashchenko

No 2014/02, EUSP Department of Economics Working Paper Series from European University at St. Petersburg, Department of Economics

Abstract: A medium-scale nonlinear dynamic stochastic general equilibrium (DSGE) model is estimated (54 variables, 29 state variables, 7 observed variables). The model includes a observed variable for stock market returns. The root-mean square error (RMSE) of the in-sample and out-of-sample forecasts is calculated. The nonlinear DSGE model with measurement errors outperforms AR (1), VAR (1) and the linearized DSGE in terms of the quality of the out-of-sample forecasts. The nonlinear DSGE model without measurement errors is actually of a quality equal to that of the linearized DSGE model.

Keywords: nonlinear DSGE; Quadratic Kalman Filter; QKF; out-of-sample forecasts (search for similar items in EconPapers)
JEL-codes: E32 E37 E44 E47 (search for similar items in EconPapers)
Pages: 23 pages
Date: 2014-05-17
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