The Effectiveness of Forward Guidance in an Estimated DSGE Model for the Euro Area: the Role of Expectations

Roberta Cardani, Alessia Paccagnini and Stelios Bekiros

No 201701, Working Papers from School of Economics, University College Dublin

Abstract: We assess the effectiveness of the forward guidance undertaken by European Central Bank using a standard medium-scale DSGE model à la Smets and Wouters (2007). Exploiting data on expectations from surveys, we show that incorporating expectations should be crucial in performance evaluation of models for the forward guidance. We conduct an exhaustive empirical exercise to compare the pseudo out-of-sample predictive performance of the estimated DSGE model with a Bayesian VAR and a DSGE-VAR models. DSGE model with expectations outperforms others for inflation; while for output and short term-interest rate the DSGE-VAR with expectations reports the best prediction.

Keywords: DSGE Bayesian estimation; Survey professional forecasts; Real time data (search for similar items in EconPapers)
JEL-codes: C52 C53 E52 E58 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2017-01
New Economics Papers: this item is included in nep-dge, nep-eec, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://hdl.handle.net/10197/8353 First version, 2017 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ucn:wpaper:201701

Access Statistics for this paper

More papers in Working Papers from School of Economics, University College Dublin Contact information at EDIRC.
Bibliographic data for series maintained by Nicolas Clifton ().