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Forecasting Canadian Time Series with the New Keynesian Model

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  • Ali Dib
  • Mohamed Gammoudi
  • Kevin Moran

Abstract

The authors document the out-of-sample forecasting accuracy of the New Keynesian model for Canada. They estimate their variant of the model on a series of rolling subsamples, computing out-of-sample forecasts one to eight quarters ahead at each step. They compare these forecasts with those arising from simple vector autoregression (VAR) models, using econometric tests of forecasting accuracy. Their results show that the forecasting accuracy of the New Keynesian model compares favourably with that of the benchmarks, particularly as the forecasting horizon increases. These results suggest that the model could become a useful forecasting tool for Canadian time series. The authors invoke the principle of parsimony to explain their findings.

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Bibliographic Info

Paper provided by Bank of Canada in its series Working Papers with number 06-4.

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Length: 47 pages
Date of creation: 2006
Date of revision:
Handle: RePEc:bca:bocawp:06-4

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Keywords: Business fluctuations and cycles; Economic models; Econometric and statistical methods;

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References

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Citations

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Cited by:
  1. Alessia Paccagnini, 2012. "Comparing Hybrid DSGE Models," Working Papers 228, University of Milano-Bicocca, Department of Economics, revised Dec 2012.
  2. Caraiani, Petre, 2008. "Forecasting Romanian GDP Using a Small DSGE Model," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 5(1), pages 182-192, March.
  3. Tobias Kitlinski & Torsten Schmidt, 2011. "The Forecasting Performance of an Estimated Medium Run Model," Ruhr Economic Papers 0301, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
  4. Manuel Ramos Francia & Alberto Torres García, 2006. "Inflation Dynamics in Mexico: A Characterization Using the New Phillips Curve," Working Papers 2006-15, Banco de México.
  5. Haider, Adnan & Din, Musleh-ud & Ghani, Ejaz, 2012. "Monetary policy, informality and business cycle fluctuations in a developing economy vulnerable to external shocks," MPRA Paper 42484, University Library of Munich, Germany.
  6. Sylvain Dessy & Safa Ragued, 2013. "Multidimensional Poverty Targeting," Cahiers de recherche 1340, CIRPEE.
  7. Ali Dib, 2003. "Monetary Policy in Estimated Models of Small Open and Closed Economies," Working Papers 03-27, Bank of Canada.
  8. Kitov, Ivan, 2007. "Exact prediction of inflation and unemployment in Canada," MPRA Paper 5015, University Library of Munich, Germany.
  9. Jean-Philippe Cayen & Marc-André Gosselin & Sharon Kozicki, 2009. "Estimating DSGE-Model-Consistent Trends for Use in Forecasting," Working Papers 09-35, Bank of Canada.
  10. Christopher Reicher, 2009. "What Can a New Keynesian Labor Matching Model Match?," Kiel Working Papers 1496, Kiel Institute for the World Economy.

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