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A Comparison Of Forecast Performance Between Federal Reserve Staff Forecasts, Simple Reduced-Form Models, And A Dsge Model

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Author Info
Rochelle M. Edge ()
Michael T. Kiley ()
Jean-Philippe Laforte ()

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Abstract

This paper considers the “real-time” forecast performance of the Federal Reserve staff, time-series models, and an estimated dynamic stochastic general equilibrium (DSGE) model – the Federal Reserve Board’s new Estimated, Dynamic, Optimization-based (Edo) model. We evaluate forecast performance using out-of-sample predictions from 1996 through 2005 – thereby examining over 70 forecasts presented to the Federal Open Market Committee (FOMC). Our analysis builds on previous real-time forecasting ex- ercises along two dimensions. First, we consider time-series models, a structural DSGE model that has been employed to answer policy questions quite different from forecast- ing, and the forecasts produced by the staff at the Federal Reserve Board. In addition, we examine forecasting performance of our DSGE model at a relatively detailed level by separately considering the forecasts for various components of consumer expenditures and private investment. The results provide significant support to the notion that richly specified DSGE models belong in the forecasting toolbox of a central bank.

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Paper provided by Australian National University, Centre for Applied Macroeconomic Analysis in its series CAMA Working Papers with number 2009-03.

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Length: 53 pages
Date of creation: Dec 2008
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Handle: RePEc:acb:camaaa:2009-03

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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  24. Michael T. Kiley, 2007. "A Quantitative Comparison of Sticky-Price and Sticky-Information Models of Price Setting," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(s1), pages 101-125, 02. [Downloadable!] (restricted)
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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Malin Adolfson & Michael K. Andersson & Jesper Lindé & Mattias Villani & Anders Vredin, 2007. "Modern Forecasting Models in Action: Improving Macroeconomic Analyses at Central Banks," International Journal of Central Banking, International Journal of Central Banking, vol. 3(4), pages 111-144, December. [Downloadable!]
    Other versions:
  2. Burriel, Pablo & Fernández-Villaverde, Jesús & Rubio-Ramirez, Juan Francisco, 2009. "MEDEA: A DSGE Model for the Spanish Economy," CEPR Discussion Papers 7297, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  3. Jon Faust & Jonathan H. Wright, 2007. "Comparing Greenbook and Reduced Form Forecasts using a Large Realtime Dataset," NBER Working Papers 13397, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  4. Rochelle M. Edge & Michael T. Kiley & Jean-Philippe Laforte, 2007. "Natural rate measures in an estimated DSGE model of the U.S. economy," Finance and Economics Discussion Series 2007-08, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
    Other versions:
  5. Frank Schorfheide & Keith Sill & Maxym Kryshko, 2008. "DSGE model-based forecasting of non-modelled variables," Working Papers 08-17, Federal Reserve Bank of Philadelphia. [Downloadable!]
    Other versions:
  6. Michel Juillard & Ondrej Kamenik & Michael Kumhof & Douglas Laxton, 2006. "Measures of Potential Output from an Estimated DSGE Model of the United States," Working Papers 2006/11, Czech National Bank, Research Department. [Downloadable!]
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