IDEAS home Printed from https://ideas.repec.org/p/cnb/wpaper/2020-7.html
   My bibliography  Save this paper

The g3+ Model: An Upgrade of the Czech National Bank's Core Forecasting Framework

Author

Listed:
  • Frantisek Brazdik
  • Tibor Hledik
  • Zuzana Humplova
  • Iva Martonosi
  • Karel Musil
  • Jakub Rysanek
  • Tomas Sestorad
  • Jaromir Tonner
  • Stanislav Tvrz
  • Jan Zacek

Abstract

This paper introduces g3+, the new core forecasting model of the Czech National Bank (CNB), which replaced the previous g3 model in July 2019. We present the features of the new core forecasting model together with our motivation for adopting them. The new structural features and extensions were motivated by our experience with using the g3 model for more than a decade as the core forecasting tool at the CNB. The new g3+ model features a novel structural foreign economy block, oil as a production factor, heterogeneous households, and other adjustments. Also, we present a new simulation approach that allows us to emulate limited information for the simulation of conditional forecasts. Furthermore, the introduction of the g3+ model on average preserves the forecasting performance of the CNBs DSGE modeling framework.

Suggested Citation

  • Frantisek Brazdik & Tibor Hledik & Zuzana Humplova & Iva Martonosi & Karel Musil & Jakub Rysanek & Tomas Sestorad & Jaromir Tonner & Stanislav Tvrz & Jan Zacek, 2020. "The g3+ Model: An Upgrade of the Czech National Bank's Core Forecasting Framework," Working Papers 2020/7, Czech National Bank.
    • Handle: RePEc:cnb:wpaper:2020/7
    as

    Download full text from publisher

    File URL: https://www.cnb.cz/export/sites/cnb/en/economic-research/.galleries/research_publications/cnb_wp/cnbwp_2020_07.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. John Y. Campbell & N. Gregory Mankiw, 1989. "Consumption, Income, and Interest Rates: Reinterpreting the Time Series Evidence," NBER Chapters, in: NBER Macroeconomics Annual 1989, Volume 4, pages 185-246, National Bureau of Economic Research, Inc.
    2. Gert Peersman & Ine van Robays, 2009. "Oil and the Euro area economy [Labour market implications of EU product market integration]," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 24(60), pages 603-651.
    3. repec:fth:harver:1435 is not listed on IDEAS
    4. Lutz Kilian, 2009. "Not All Oil Price Shocks Are Alike: Disentangling Demand and Supply Shocks in the Crude Oil Market," American Economic Review, American Economic Association, vol. 99(3), pages 1053-1069, June.
    5. Hantzsche, Arno & Lopresto, Marta & Young, Garry, 2018. "Using NiGEM in uncertain times: Introduction and overview of NiGEM," National Institute Economic Review, National Institute of Economic and Social Research, vol. 244, pages 1-14, May.
    6. Heaton, John, 1995. "An Empirical Investigation of Asset Pricing with Temporally Dependent Preference Specifications," Econometrica, Econometric Society, vol. 63(3), pages 681-717, May.
    7. Xiaohong Chen & Sydney C. Ludvigson, 2009. "Land of addicts? an empirical investigation of habit‐based asset pricing models," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 24(7), pages 1057-1093, November.
    8. Constantinides, George M, 1990. "Habit Formation: A Resolution of the Equity Premium Puzzle," Journal of Political Economy, University of Chicago Press, vol. 98(3), pages 519-543, June.
    9. Cavallari, Lilia, 2010. "Exports and foreign direct investments in an endogenous-entry model with real and nominal uncertainty," Journal of Macroeconomics, Elsevier, vol. 32(1), pages 300-313, March.
    10. Michal Andrle & Tibor Hledik & Ondra Kamenik & Jan Vlcek, 2009. "Implementing the New Structural Model of the Czech National Bank," Working Papers 2009/2, Czech National Bank.
    11. Jeffrey C. Fuhrer, 2000. "Habit Formation in Consumption and Its Implications for Monetary-Policy Models," American Economic Review, American Economic Association, vol. 90(3), pages 367-390, June.
    12. Sungbae An & Heedon Kang, 2011. "Oil Shocks in a DSGE Model for the Korean Economy," NBER Chapters, in: Commodity Prices and Markets, pages 295-321, National Bureau of Economic Research, Inc.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Jaromir Tonner, 2022. "Current trends in macroeconomic modelling in central banks in light of the turbulent nature of recent events," Occasional Publications - Chapters in Edited Volumes, in: CNB Global Economic Outlook - July 2022, pages 14-20, Czech National Bank.
    2. Miroslav Plasil, 2021. "Designing Macro-Financial Scenarios: The New CNB Framework and Satellite Models for Property Prices and Credit," Research and Policy Notes 2021/01, Czech National Bank.
    3. Angelo Marsiglia Fasolo & Eurilton Araújo & Marcos Valli Jorge & Alexandre Kornelius & Leonardo Sousa Gomes Marinho, 2023. "Brazilian Macroeconomic Dynamics Redux: Shocks, Frictions, and Unemployment in SAMBA Model," Working Papers Series 578, Central Bank of Brazil, Research Department.
    4. Karel Musil & Stanislav Tvrz & Jan Vlcek, 2021. "News versus Surprise in Structural Forecasting Models: Central Bankers' Practical Perspective," Research and Policy Notes 2021/02, Czech National Bank.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. M. Fatih Guvenen, 2003. "A Parsimonious Macroeconomic Model for Asset Pricing: Habit Formation or Cross-sectional Heterogeneity?," RCER Working Papers 499, University of Rochester - Center for Economic Research (RCER).
    2. Ludvigson, Sydney C., 2013. "Advances in Consumption-Based Asset Pricing: Empirical Tests," Handbook of the Economics of Finance, in: G.M. Constantinides & M. Harris & R. M. Stulz (ed.), Handbook of the Economics of Finance, volume 2, chapter 0, pages 799-906, Elsevier.
    3. Lawrence J. Christiano & Michele Boldrin & Jonas D. M. Fisher, 2001. "Habit Persistence, Asset Returns, and the Business Cycle," American Economic Review, American Economic Association, vol. 91(1), pages 149-166, March.
    4. Gómez Manuel A., 2010. "Endogenous Growth, Habit Formation and Convergence Speed," The B.E. Journal of Macroeconomics, De Gruyter, vol. 10(1), pages 1-32, January.
    5. Holger Kraft & Claus Munk & Frank Thomas Seifried & Sebastian Wagner, 2017. "Consumption habits and humps," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 64(2), pages 305-330, August.
    6. Emilio Fernandez-Corugedo, 2004. "Consumption Theory," Handbooks, Centre for Central Banking Studies, Bank of England, number 23, April.
    7. M Boschi & S d'Addona & A Goenka, 2012. "Testing external habits in an asset pricing model," CAMA Working Papers 2012-20, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    8. Pagano, Patrizio, 2004. "Habit persistence and the marginal propensity to consume in Japan," Journal of the Japanese and International Economies, Elsevier, vol. 18(3), pages 316-329, September.
    9. Christopher D. Carroll & Edmund Crawley & Jiri Slacalek & Kiichi Tokuoka & Matthew N. White, 2020. "Sticky Expectations and Consumption Dynamics," American Economic Journal: Macroeconomics, American Economic Association, vol. 12(3), pages 40-76, July.
    10. James M. Nason & Takashi Kano, 2004. "Business Cycle Implications of Habit Formation," Computing in Economics and Finance 2004 175, Society for Computational Economics.
    11. Juncal Cunado & Soojin Jo & Fernando Perez de Gracia, 2015. "Revisiting the Macroeconomic Impact of Oil Shocks in Asian Economies," Staff Working Papers 15-23, Bank of Canada.
    12. Stuart Hyde & Mohamed Sherif, 2005. "Consumption Asset Pricing Models: Evidence From The Uk," Manchester School, University of Manchester, vol. 73(3), pages 343-363, June.
    13. Eduard Dubin & Olesya V. Grishchenko & Vasily Kartashov, 2012. "Habit formation heterogeneity: Implications for aggregate asset pricing," Finance and Economics Discussion Series 2012-07, Board of Governors of the Federal Reserve System (U.S.).
    14. Michele Boldrin & Lawrence J. Christiano & Jonas D.M. Fisher, 1995. "Asset Pricing Lessons for Modeling Business Cycles," NBER Working Papers 5262, National Bureau of Economic Research, Inc.
    15. Havranek, Tomas & Rusnak, Marek & Sokolova, Anna, 2017. "Habit formation in consumption: A meta-analysis," European Economic Review, Elsevier, vol. 95(C), pages 142-167.
    16. Johdo, Wataru, 2009. "Habit persistence and stagnation," Economic Modelling, Elsevier, vol. 26(5), pages 1110-1114, September.
    17. Vasilev, Aleksandar, 2020. "Indeterminacy with preferences featuring multiplicative habits in consumption: lessons from Bulgaria (1999-2016)," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, issue forthcomi.
    18. Cepii & Cepremap, 2001. "MARMOTTE : a Multinational Model," Working Papers 2001-15, CEPII research center.
    19. Josep Pijoan-Mas, 2007. "Pricing Risk in Economies with Heterogeneous Agents and Incomplete Markets," Journal of the European Economic Association, MIT Press, vol. 5(5), pages 987-1015, September.
    20. Aleksandar Vasilev, 2021. "Indeterminacy with preferences featuring multiplicative habits in consumption," Journal of Economics and Econometrics, Economics and Econometrics Society, vol. 64(3), pages 1-16.

    More about this item

    Keywords

    Conditional forecast; DSGE; g3 model; oil; small open economy; two country model;
    All these keywords.

    JEL classification:

    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • E27 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Forecasting and Simulation: Models and Applications
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cnb:wpaper:2020/7. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Jan Babecky (email available below). General contact details of provider: https://edirc.repec.org/data/cnbgvcz.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.