Estimating point and density forecasts for the US economy with a factor-augmented vector autoregressive DSGE model

Stelios Bekiros and Alessia Paccagnini

Open Access publications from School of Economics, University College Dublin

Abstract: Although policymakers and practitioners are particularly interested in dynamic stochastic general equilibrium (DSGE) models, these are typically too stylized to be applied directly to the data and often yield weak prediction results. Very recently, hybrid DSGE models have become popular for dealing with some of the model misspecifications. Major advances in estimation methodology could allow these models to outperform well-known time series models and effectively deal with more complex real-world problems as richer sources of data become available. In this study we introduce a Bayesian approach to estimate a novel factor augmented DSGE model that extends the model of Consolo et al. [Consolo, A., Favero, C.A., and Paccagnini, A., 2009. On the Statistical Identification of DSGE Models. Journal of Econometrics, 150, 99–115]. We perform a comparative predictive evaluation of point and density forecasts for many different specifications of estimated DSGE models and various classes of VAR models, using datasets from the US economy including real-time data. Simple and hybrid DSGE models are implemented, such as DSGE-VAR and tested against standard, Bayesian and factor augmented VARs. The results can be useful for macro-forecasting and monetary policy analysis.

Keywords: Density forecasting; Marginal data density; DSGE-FAVAR; Real-Time data (search for similar items in EconPapers)
JEL-codes: C11 C15 C32 C53 D58 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2014-10
New Economics Papers: this item is included in nep-dge, nep-ecm, nep-for and nep-ore
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Published in: Studies in Nonlinear Dynamics and Econometrics, 19(2) 2014-10

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http://hdl.handle.net/10197/7588 Open Access version, 2014 (application/pdf)

Related works:
Journal Article: Estimating point and density forecasts for the US economy with a factor-augmented vector autoregressive DSGE model (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:ucn:oapubs:10197/7588

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