Predictive likelihood comparisons with DSGE and DSGE-VAR models
AbstractThis paper shows how to compute the h-step-ahead predictive likelihood for any subset of the observed variables in parametric discrete time series models estimated with Bayesian methods. The subset of variables may vary across forecast horizons and the problem thereby covers marginal and joint predictive likelihoods for a fixed subset as special cases. The basic idea is to utilize well-known techniques for handling missing data when computing the likelihood function, such as a missing observations consistent Kalman filter for linear Gaussian models, but it also extends to nonlinear, nonnormal state-space models. The predictive likelihood can thereafter be calculated via Monte Carlo integration using draws from the posterior distribution. As an empirical illustration, we use euro area data and compare the forecasting performance of the New Area-Wide Model, a small-open-economy DSGE model, to DSGEVARs, and to reduced-form linear Gaussian models. JEL Classification: C11, C32, C52, C53, E37
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Bibliographic InfoPaper provided by European Central Bank in its series Working Paper Series with number 1536.
Date of creation: Apr 2013
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Find related papers by JEL classification:
- C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models
- C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
- C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
- E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-08-23 (All new papers)
- NEP-DGE-2013-08-23 (Dynamic General Equilibrium)
- NEP-ECM-2013-08-23 (Econometrics)
- NEP-ETS-2013-08-23 (Econometric Time Series)
- NEP-FOR-2013-08-23 (Forecasting)
- NEP-ORE-2013-08-23 (Operations Research)
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