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Putting the New Keynesian DSGE Model to the Real‐Time Forecasting Test

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  • MARCIN KOLASA
  • MICHAŁ RUBASZEK
  • PAWEŁ SKRZYPCZYŃSKI

Abstract

Dynamic stochastic general equilibrium models have recently become standard tools for policy-oriented analyses. Nevertheless, their forecasting properties are still barely explored. We fill this gap by comparing the quality of real-time forecasts from a richly-specified DSGE model to those from the Survey of Professional Forecasters, Bayesian VARs and VARs using priors from a DSGE model. We show that the analyzed DSGE model is relatively successful in forecasting the US economy in the period of 1994-2008. Except for short-term forecasts of inflation and interest rates, it is as good as or clearly outperforms BVARs and DSGE-VARs. Compared to the SPF, the DSGE model generates better output forecasts at longer horizons, but less accurate short-term forecasts for interest rates. Conditional on experts' now casts, however, the forecasting power of the DSGE turns out to be similar or better than that of the SPF for all the variables and horizons. JEL Classification: C11, C32, C53, D58, E17

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File URL: http://hdl.handle.net/10.1111/j.1538-4616.2012.00533.x
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Bibliographic Info

Article provided by Blackwell Publishing in its journal Journal of Money, Credit and Banking.

Volume (Year): 44 (2012)
Issue (Month): 7 (October)
Pages: 1301-1324

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Handle: RePEc:mcb:jmoncb:v:44:y:2012:i:7:p:1301-1324

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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-2879

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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. DSGE models and forecasting
    by Christian Zimmermann in NEP-DGE blog on 2009-12-21 00:35:25
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Cited by:
  1. Bekiros, Stelios D. & Paccagnini, Alessia, 2014. "Bayesian forecasting with small and medium scale factor-augmented vector autoregressive DSGE models," Computational Statistics & Data Analysis, Elsevier, vol. 71(C), pages 298-323.
  2. Marco Del Negro & Frank Schorfheide, 2012. "DSGE model-based forecasting," Staff Reports 554, Federal Reserve Bank of New York.
  3. 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.
  4. Alessia Paccagnini, 2012. "Comparing Hybrid DSGE Models," Working Papers 228, University of Milano-Bicocca, Department of Economics, revised Dec 2012.

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