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Monetary Policy Forecasting in a DSGE Model with Data that is Uncertain, Unbalanced and About the Future

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  • Andrés González Gómez

    ()

  • Lavan Mahadeva

    ()

  • Diego Rodríguez

    ()

  • Luis Eduardo Rojas

    ()

Abstract

If theory-consistent models can ever hope to forecast well and to be useful for policy, they have to relate to data which though rich in information is uncertain, unbalanced and sometimes forecasts from external sources about the future path of other variables. One example from many is financial market data, which can help but only after smoothing out irrelevant short-term volatility. In this paper we propose combining different types of useful but awkward data set with a linearised forward-looking DSGE model through a Kalman Filter fixed-interval smoother to improve the utility of these models as policy tools. We apply this scheme to a model for Colombia.

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Paper provided by Banco de la Republica de Colombia in its series Borradores de Economia with number 559.

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Handle: RePEc:bdr:borrec:559

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

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References

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  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, International Journal of Central Banking, vol. 3(4), pages 111-144, December.
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  13. Andrés González & Lavan Mahadeva & Juan D. Prada & Diego Rodríguez, 2011. "Policy Analysis Tool Applied to Colombian Needs: PATACON Model Description," BORRADORES DE ECONOMIA, BANCO DE LA REPÚBLICA 008698, BANCO DE LA REPÚBLICA.
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Cited by:
  1. Andrés González & Lavan Mahadeva & Juan D. Prada & Diego Rodríguez, 2011. "Policy Analysis Tool Applied to Colombian Needs: PATACON Model Description," BORRADORES DE ECONOMIA, BANCO DE LA REPÚBLICA 008698, BANCO DE LA REPÚBLICA.
  2. Luis E. Rojas, 2011. "Professional Forecasters: How to Understand and Exploit Them Through a DSGE Model," BORRADORES DE ECONOMIA, BANCO DE LA REPÚBLICA 008945, BANCO DE LA REPÚBLICA.
  3. Ramiro Rodríguez Revilla, 2011. "Modelos de equilibrio general dinámicos y estocásticos para Colombia 1995-2011," REVISTA ECOS DE ECONOMÍA, UNIVERSIDAD EAFIT, UNIVERSIDAD EAFIT.

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