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Forecasting the Spanish economy with an augmented VAR–DSGE model

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  • Gonzalo Fernández-de-Córdoba
  • José Torres

    ()

Abstract

During the past ten years Dynamic Stochastic General Equilibrium (DSGE) models have become an important tool in quantitative macroeconomics. However, DSGE models was not considered as a forecasting tool until very recently. The objective of this paper is twofold. First, we compare the forecasting ability of a canonical DSGE model for the Spanish economy with other standard econometric techniques. More precisely, we compare out-of-sample forecasts coming from different estimation methods of the DSGE model to the forecasts produced by a VAR and a Bayesian VAR. Second, we propose a new method for combining DSGE and VAR models (Augmented VAR-DSGE) through the expansion of the variable space where the VAR operates with artificial series obtained from a DSGE model. The results indicate that the out-of-sample forecasting performance of the proposed method outperforms all the considered alternatives.

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File URL: http://hdl.handle.net/10.1007/s13209-010-0036-1
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Bibliographic Info

Article provided by Spanish Economic Association in its journal SERIEs.

Volume (Year): 2 (2011)
Issue (Month): 3 (September)
Pages: 379-399

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Handle: RePEc:spr:series:v:2:y:2011:i:3:p:379-399

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Related research

Keywords: DSGE models; Forecasting; VAR; BVAR; C53; E32; E37;

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References

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Cited by:
  1. Luis E. Rojas, 2011. "Professional Forecasters: How to Understand and Exploit Them Through a DSGE Model," BORRADORES DE ECONOMIA 008945, BANCO DE LA REPÚBLICA.

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