Forecasting with a Bayesian DSGE Model: an application to the euro area
Frank Smets and
Raf Wouters ()
No 60, Working Paper Research from National Bank of Belgium
In monetary policy strategies geared towards maintaining price stability conditional and unconditional forecasts of inflation and output play an important role. In this paper we illustrate how modern sticky-price dynamic stochastic general equilibrium (DSGE) 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.
Keywords: forecasting; DSGE models; monetary policy; euro area (search for similar items in EconPapers)
JEL-codes: E4 E5 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-eec, nep-ets and nep-ifn
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (41) 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:nbb:reswpp:200409-2
Access Statistics for this paper
More papers in Working Paper Research from National Bank of Belgium Contact information at EDIRC.
Bibliographic data for series maintained by ().