Advanced Search
MyIDEAS: Login

Comparing the DSGE model with the factor model: an out-of-sample forecasting experiment

Contents:

Author Info

  • Mu-Chun Wang

    (Goethe University Frankfurt, Germany)

Abstract

In this paper, we put dynamic stochastic general equilibrium DSGE forecasts in competition with factor forecasts. We focus on these two models since they represent nicely the two opposing forecasting philosophies. The DSGE model on the one hand has a strong theoretical economic background; the factor model on the other hand is mainly data-driven. We show that incorporating a large information set using factor analysis can indeed improve the short-horizon predictive ability, as claimed by many researchers. The micro-founded DSGE model can provide reasonable forecasts for US inflation, especially with growing forecast horizons. To a certain extent, our results are consistent with the prevailing view that simple time series models should be used in short-horizon forecasting and structural models should be used in long-horizon forecasting. Our paper compares both state-of-the-art data-driven and theory-based modelling in a rigorous manner. Copyright © 2008 John Wiley & Sons, Ltd.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://hdl.handle.net/10.1002/for.1081
File Function: Link to full text; subscription required
Download Restriction: no

Bibliographic Info

Article provided by John Wiley & Sons, Ltd. in its journal Journal of Forecasting.

Volume (Year): 28 (2009)
Issue (Month): 2 ()
Pages: 167-182

as in new window
Handle: RePEc:jof:jforec:v:28:y:2009:i:2:p:167-182

Contact details of provider:
Web page: http://www3.interscience.wiley.com/cgi-bin/jhome/2966

Related research

Keywords:

Other versions of this item:

Find related papers by JEL classification:

References

No references listed on IDEAS
You can help add them by filling out this form.

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Christoffel, Kai & Warne, Anders & Coenen, Günter, 2010. "Forecasting with DSGE models," Working Paper Series 1185, European Central Bank.
  2. Wieland, Volker & Wolters, Maik H., 2010. "The diversity of forecasts from macroeconomic models of the U.S. economy," CFS Working Paper Series 2010/08, Center for Financial Studies (CFS).
  3. Wolters, Maik Hendrik, 2012. "Evaluating point and density forecasts of DSGE models," IMFS Working Paper Series 59, Institute for Monetary and Financial Stability (IMFS), Goethe University Frankfurt.
  4. Rangan Gupta & Alain Kabundi & Stephen M. Miller, 2009. "Forecasting the US Real House Price Index: Structural and Non-Structural Models with and without Fundamentals," Working Papers 200927, University of Pretoria, Department of Economics.
  5. Wolters, Maik H., 2011. "Forecasting under Model Uncertainty," Annual Conference 2011 (Frankfurt, Main): The Order of the World Economy - Lessons from the Crisis 48723, Verein für Socialpolitik / German Economic Association.
  6. Falch, Nina Skrove & Nymoen, Ragnar, 2011. "The accuracy of a forecast targeting central bank," Economics Discussion Papers 2011-6, Kiel Institute for the World Economy.
  7. Gupta, Rangan & Kabundi, Alain, 2011. "A large factor model for forecasting macroeconomic variables in South Africa," International Journal of Forecasting, Elsevier, vol. 27(4), pages 1076-1088, October.
  8. Stelios Bekiros & Alessia Paccagnini, 2013. "On the predictability of time-varying VAR and DSGE models," Empirical Economics, Springer, vol. 45(1), pages 635-664, August.
  9. Bušs, Ginters, 2009. "Comparing forecasts of Latvia's GDP using simple seasonal ARIMA models and direct versus indirect approach," MPRA Paper 16684, University Library of Munich, Germany.
  10. Poghosyan, K., 2012. "Structural and reduced-form modeling and forecasting with application to Armenia," Open Access publications from Tilburg University urn:nbn:nl:ui:12-5590845, Tilburg University.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:jof:jforec:v:28:y:2009:i:2:p:167-182. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing) or (Christopher F. Baum).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.