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Forecasting with Real Business Cycle Models

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  • Christian Zimmermann

    (Universite du Quebec a Montreal)

Abstract

Forecasting at business cycle frequencies is traditionally done with statistically estimated econometric models. This paper takes a different approach, using a calibrated dynamic general equilibrium model in line with the real business cycle literature. First attempts by others have not proved very successful, most probably because the structure of the models was too simple. We take a simple real business cycle model, the Kydland-Prescott (1982) model economy sufficiently simplified to accommodate for the availability of state variables in the data, augmented by government expense shocks. The forecasts are then evaluated with the traditional tools of the econometric forecaster. It is found that the model has potential for making good forecasts when compared to estimated models that are equally parsimonious.

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Bibliographic Info

Article provided by Department of Economics, Delhi School of Economics in its journal Indian Economic Review.

Volume (Year): 36 (2001)
Issue (Month): 1 (January)
Pages: 189-203

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Handle: RePEc:dse:indecr:v:36:y:2001:i:1:p:189-203

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References

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  1. David K. Backus & Patrick J. Kehoe & Finn E. Kydland, 1992. "Dynamics of the trade balance and the terms of trade: the S-curve," Working Paper 9211, Federal Reserve Bank of Cleveland.
  2. David Backus & Patrick J. Kehoe & Finn E. Kydland, 1993. "International Business Cycles: Theory and Evidence," NBER Working Papers 4493, National Bureau of Economic Research, Inc.
  3. Ingram, Beth F. & Whiteman, Charles H., 1994. "Supplanting the 'Minnesota' prior: Forecasting macroeconomic time series using real business cycle model priors," Journal of Monetary Economics, Elsevier, vol. 34(3), pages 497-510, December.
  4. Christian Zimmermann, 1995. "International Trade over the Business Cycle: Stylized Facts and Remaining Puzzles," Cahiers de recherche CREFE / CREFE Working Papers 37, CREFE, Université du Québec à Montréal, revised Aug 1997.
  5. Lucas, Robert Jr, 1976. "Econometric policy evaluation: A critique," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 1(1), pages 19-46, January.
  6. Ireland, Peter N., 2001. "Technology shocks and the business cycle: On empirical investigation," Journal of Economic Dynamics and Control, Elsevier, vol. 25(5), pages 703-719, May.
  7. Gary Hansen, 2010. "Indivisible Labor and the Business Cycle," Levine's Working Paper Archive 233, David K. Levine.
  8. Christian Zimmermann, 1994. "Technology Innovations and the Volatility of Output: An International Perspective," Cahiers de recherche CREFE / CREFE Working Papers 34, CREFE, Université du Québec à Montréal.
  9. Julio J. Rotemberg & Michael Woodford, 1993. "Dynamic General Equilibrium Models with Imperfectly Competitive Product Markets," NBER Working Papers 4502, National Bureau of Economic Research, Inc.
  10. Kydland, Finn E & Prescott, Edward C, 1982. "Time to Build and Aggregate Fluctuations," Econometrica, Econometric Society, vol. 50(6), pages 1345-70, November.
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