An Empirical BVAR-DSGE Model of the Australian Economy

Sean Langcake and Tim Robinson
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Sean Langcake: Reserve Bank of Australia

RBA Research Discussion Papers from Reserve Bank of Australia

Abstract: In this paper, we develop a multi-sector dynamic stochastic general equilibrium (DSGE) model with a simple commodity sector and assess whether forecasts from this model can be improved by using it as a prior for an empirical Bayesian vector autoregression (BVAR). We treat the world economy as being observed and exogenous to the small economy, rather than unobserved, as has been done in some previous studies, such as Hodge, Robinson and Stuart (2008) and Lees, Matheson and Smith (2011). We find that the forecasts from a BVAR that uses this DSGE model as a prior are generally more accurate than those from the DSGE model alone. Nevertheless, these forecasts do not outperform a small open economy VAR estimated using other standard priors or simple univariate benchmarks.

Keywords: empirical Bayesian VAR; forecasting; small open economy (search for similar items in EconPapers)
JEL-codes: C53 E13 (search for similar items in EconPapers)
Date: 2013-06
New Economics Papers: this item is included in nep-dge and nep-for
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:rba:rbardp:rdp2013-07

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