How frequently should we re-estimate DSGE models?

Marcin Kolasa and Michał Rubaszek

No 194, NBP Working Papers from Narodowy Bank Polski

Abstract: A common practice in policy making institutions using DSGE models for forecasting is to re-estimate them only occasionally rather than every forecasting round. In this paper we ask how such a practice affects the accuracy of DSGE model-based forecasts. To this end we use a canonical medium-sized New Keynesian model and compare how its quarterly real-time forecasts for the US economy vary with the interval between consecutive re-estimations. We find that updating the model parameters only once a year usually does not lead to any significant deterioration in the accuracy of point forecasts. On the other hand, there are some gains from increasing the frequency of re-estimation if one is interested in the quality of density forecasts.

Keywords: forecasting; DSGE models; parameter updating (search for similar items in EconPapers)
JEL-codes: C53 E37 (search for similar items in EconPapers)
Date: 2014
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Journal Article: How Frequently Should We Reestimate DSGE Models? (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:nbp:nbpmis:194

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