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Professional Forecasters: How to Understand and Exploit Them Through a DSGE Model

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  • Luis E. Rojas

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Abstract

This paper derives a link between the forecasts of professional forecasters and a DSGE model. I show that the forecasts of a professional forecaster can be incorporated to the state space representation of the model by allowing the measurement error of the forecast and the structural shocks to be correlated. The parameters capturing this correlation are reduced form parameters that allow to address two issues i) How the forecasts of the professional forecaster can be exploited as a source of information for the estimation of the model and ii) How to characterize the deviations of the professional forecaster from an ideal complete information forecaster in terms of the shocks and the structure of the economy.

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Paper provided by Banco de la Republica de Colombia in its series Borradores de Economia with number 664.

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Handle: RePEc:bdr:borrec:664

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Keywords: Mercado laboral; VAR estructural; DSGE; Economía abierta; Política monetaria. Classification JEL:Professional Forecasters; DSGE models.;

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References

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  1. Mirko Wiederholt & Bartosz Mackowiak, 2005. "Optimal Sticky Prices under Rational Inattention," 2005 Meeting Papers 369, Society for Economic Dynamics.
  2. Andrade, P. & Le Bihan, H., 2010. "Inattentive professional forecasters," Working papers 307, Banque de France.
  3. Marco Ottaviani & Peter Norman Sorensen, 2001. "The Strategy of Professional Forecasting," Discussion Papers 01-09, University of Copenhagen. Department of Economics.
  4. Koopman, Siem Jan & Harvey, Andrew, 2003. "Computing observation weights for signal extraction and filtering," Journal of Economic Dynamics and Control, Elsevier, vol. 27(7), pages 1317-1333, May.
  5. Boivin, J. & Giannoni, M., 2007. "DSGE Models in a Data-Rich Environment," Working papers 162, Banque de France.
  6. Peter N. Ireland, 1999. "A method for taking models to the data," Working Paper 9903, Federal Reserve Bank of Cleveland.
  7. Andrés González Gómez & Lavan Mahadeva & Diego Rodríguez & Luis Eduardo Rojas, 2009. "Monetary Policy Forecasting In A Dsge Model With Data That Is Uncertain, Unbalanced And About The Future," BORRADORES DE ECONOMIA 005480, BANCO DE LA REPÚBLICA.
  8. Carlos Bowles & Roberta Friz & Veronique Genre & Geoff Kenny & Aidan Meyler & Tuomas Rautanen, 2007. "The ECB survey of professional forecasters (SPF) – A review after eight years’ experience," Occasional Paper Series 59, European Central Bank.
  9. Sargent, Thomas J, 1989. "Two Models of Measurements and the Investment Accelerator," Journal of Political Economy, University of Chicago Press, vol. 97(2), pages 251-87, April.
  10. Genre, Véronique & Kenny, Geoff & Meyler, Aidan & Timmermann, Allan, 2010. "Combining the forecasts in the ECB survey of professional forecasters: can anything beat the simple average?," Working Paper Series 1277, European Central Bank.
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