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Open Economy Dsge-Var Forecasting And Policy Analysis: Head To Head With The Rbnz Published Forecasts

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  • Kirdan Lees

    ()

  • Troy Matheson
  • Christie Smith

Abstract

We evaluate the performance of an open economy DSGE-VAR model for New Zealand along both forecasting and policy dimensions. We show that forecasts froma DSGE-VAR and a "vanilla" DSGE model are competitive with, and in some dimensions superrior to, the Reserve Bank of New Zealand's official forecasts. We also use the estimated DSGE-VAR structure to identify optimal policy rules that are consistent with the Reserve bank's Policy Targets Agreement. Optimal policy rules under parameter certainty prove to be relatively similar to the certainty case. The optimal policies react aggressively to inflation and contain a large degree of interest rate smoothing, but place a low weight on responding to output or the change in the nominal exchange rate.

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Bibliographic Info

Paper provided by Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University in its series CAMA Working Papers with number 2007-05.

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Length: 39 pages
Date of creation: Jan 2007
Date of revision:
Handle: RePEc:een:camaaa:2007-05

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  1. Litterman, Robert B, 1986. "Forecasting with Bayesian Vector Autoregressions-Five Years of Experience," Journal of Business & Economic Statistics, American Statistical Association, American Statistical Association, vol. 4(1), pages 25-38, January.
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  5. Martin Fukac & Adrian Pagan, 2006. "Issues In Adopting Dsge Models For Use In The Policy Process," CAMA Working Papers, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University 2006-10, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
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Cited by:
  1. Massimiliano Marcellino & Yuliya Rychalovska, 2012. "An estimated DSGE model of a Small Open Economy within the Monetary Union: Forecasting and Structural Analysis," RSCAS Working Papers, European University Institute 2012/34, European University Institute.
  2. Kolasa, Marcin & Rubaszek, Michał & Skrzypczyński, Paweł, 2009. "Putting the New Keynesian DSGE model to the real-time forecasting test," Working Paper Series, European Central Bank 1110, European Central Bank.
  3. Özer Karagedikli & Troy Matheson & Christie Smith & Shaun Vahey, 2008. "RBCs and DSGEs: The Computational Approach to Business Cycle Theory and Evidence," Working Paper, Norges Bank 2008/17, Norges Bank.
  4. Rochelle M. Edge & Michael T. Kiley & Jean-Philippe Laforte, 2009. "A comparison of forecast performance between Federal Reserve staff forecasts, simple reduced-form models, and a DSGE model," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 2009-10, Board of Governors of the Federal Reserve System (U.S.).
  5. Andrew Hodge & Tim Robinson & Robyn Stuart, 2008. "A Small BVAR-DSGE Model for Forecasting the Australian Economy," RBA Research Discussion Papers, Reserve Bank of Australia rdp2008-04, Reserve Bank of Australia.
  6. Michael Wickens, 2014. "How Useful are DSGE Macroeconomic Models for Forecasting?," Open Economies Review, Springer, Springer, vol. 25(1), pages 171-193, February.
  7. Edge, Rochelle M & Gürkaynak, Refet S., 2010. "How Useful Are Estimated DSGE Model Forecasts for Central Bankers?," CEPR Discussion Papers, C.E.P.R. Discussion Papers 8158, C.E.P.R. Discussion Papers.
  8. Marek Rusnak, 2013. "Nowcasting Czech GDP in Real Time," Working Papers, Czech National Bank, Research Department 2013/06, Czech National Bank, Research Department.
  9. Gregor Bäuerle & Tobias Menz, 2008. "Monetary Policy in a Small Open Economy Model: A DSGE-VAR Approach for Switzerland," Working Papers, Swiss National Bank, Study Center Gerzensee 08.03, Swiss National Bank, Study Center Gerzensee.
  10. Rangan Gupta & Rudi Steinbach, 2010. "Forecasting Key Macroeconomic Variables of the South African Economy: A Small Open Economy New Keynesian DSGE-VAR Model," Working Papers, University of Pretoria, Department of Economics 201019, University of Pretoria, Department of Economics.
  11. Rochelle M. Edge & Refet S. Gurkaynak, 2011. "How useful are estimated DSGE model forecasts?," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 2011-11, Board of Governors of the Federal Reserve System (U.S.).
  12. Paul Hubert, 2011. "Do central banks forecast influence private agents ? Forecasting performance vs. signals," Documents de Travail de l'OFCE, Observatoire Francais des Conjonctures Economiques (OFCE) 2011-20, Observatoire Francais des Conjonctures Economiques (OFCE).
  13. Julien Albertini & Güneş Kamber & Michael Kirker, 2011. "An estimated small open economy model with frictional unemployment," Reserve Bank of New Zealand Discussion Paper Series DP2011/04, Reserve Bank of New Zealand.
  14. Jaromír Beneš & Andrew Binning & Kirdan Lees, 2008. "Incorporating judgement with DSGE models," Reserve Bank of New Zealand Discussion Paper Series DP2008/10, Reserve Bank of New Zealand.
  15. Alessia Paccagnini, 2012. "Comparing Hybrid DSGE Models," Working Papers, University of Milano-Bicocca, Department of Economics 228, University of Milano-Bicocca, Department of Economics, revised Dec 2012.

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