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Testing a DSGE model and its partner database

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  • Lavan Mahadeva

    ()

  • Juan Carlos Parra Alvarez

    ()

Abstract

There is now an impetus to apply dynamic stochastic general equilibrium models to forecasting. But these models typically rely on purpose-built data, for example on tradable and nontradable sector outputs. How then do we know that the model will forecast well, in advance? We develop an early warning test of the database-model match and apply that to a Colombian model. Our test reveals where the combination should work (consumption) and where not (in investment). The test can be adapted to look at many likely sources of DSGE model failure.

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Paper provided by Banco de la Republica de Colombia in its series Borradores de Economia with number 479.

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Handle: RePEc:bdr:borrec:479

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Keywords: Monetary Policy; Sectoral Model; DSGE; Forecast Performance; Kalman Filter. Classification JEL: F47; E01; C61;

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References

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  1. Fabio Canova & Luca Sala, 2006. "Back to square one: identification issues in DSGE models," Computing in Economics and Finance 2006 196, Society for Computational Economics.
  2. Mattias Villani & Malin Adolfson & Jesper Linde, 2005. "Forecasting Performance of an Open Economy Dynamic Stochastic General Equilibrium Model," Money Macro and Finance (MMF) Research Group Conference 2005 32, Money Macro and Finance Research Group.
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  10. Andrés González & Lavan Mahadeva & Juan D. Prada & Diego Rodríguez, . "Policy Analysis Tool Applied to Colombian Needs: PATACON Model Description," Borradores de Economia 656, Banco de la Republica de Colombia.
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  16. Frank Smets & Rafael Wouters, 2007. "Shocks and Frictions in US Business Cycles: A Bayesian DSGE Approach," American Economic Review, American Economic Association, vol. 97(3), pages 586-606, June.
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Cited by:
  1. Enrique López & Andrés Salamanca, 2009. "El efecto riqueza de la vivienda en Colombia," COYUNTURA ECONÓMICA, FEDESARROLLO.
  2. Enrique López Enciso & Andrés Salamanca Lugo, . "El efecto riqueza de la vivienda en Colombia," Borradores de Economia 551, Banco de la Republica de Colombia.
  3. Ramiro Rodríguez Revilla, 2011. "Modelos de equilibrio general dinámicos y estocásticos para Colombia 1995-2011," REVISTA ECOS DE ECONOMÍA, UNIVERSIDAD EAFIT.

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