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DSGE model-based forecasting of non-modelled variables

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Author Info
Frank Schorfheide
Keith Sill
Maxym Kryshko

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Abstract

This paper develops and illustrates a simple method to generate a DSGE model-based forecast for variables that do not explicitly appear in the model (non-core variables). The authors use auxiliary regressions that resemble measurement equations in a dynamic factor model to link the non-core variables to the state variables of the DSGE model. Predictions for the non-core variables are obtained by applying their measurement equations to DSGE model- generated forecasts of the state variables. Using a medium-scale New Keynesian DSGE model, the authors apply their approach to generate and evaluate recursive forecasts for PCE inflation, core PCE inflation, and the unemployment rate along with predictions for the seven variables that have been used to estimate the DSGE model.

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Paper provided by Federal Reserve Bank of Philadelphia in its series Working Papers with number 08-17.

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Date of creation: 2008
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Handle: RePEc:fip:fedpwp:08-17

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Keywords: Forecasting;

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  4. Marco Del Negro & Frank Schorfheide, 2008. "Forming Priors for DSGE Models (and How it Affects the Assessment of Nominal Rigidities)," NBER Working Papers 13741, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  5. Jean Boivin & Marc Giannoni, 2006. "DSGE Models in a Data-Rich Environment," NBER Working Papers 12772, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  6. Malin Adolfson & Stefan Laseen & Jesper Lindé & Mattias Villani, 2005. "An estimated New Keynesian small open economy model," Proceedings, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
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  8. Del Negro, Marco & Schorfheide, Frank & Smets, Frank & Wouters, Rafael, 2007. "On the Fit of New Keynesian Models," Journal of Business & Economic Statistics, American Statistical Association, vol. 25, pages 123-143, April. [Downloadable!] (restricted)
  9. Günter Coenen & Peter McAdam & Roland Straub, 2007. "Tax reform and labour-market performance in the euro area - a simulation-based analysis using the New Area-Wide Model," Working Paper Series 747, European Central Bank. [Downloadable!]
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  10. Francis X. Diebold & Jinyong Hahn & Anthony S. Tay, 1999. "Multivariate Density Forecast Evaluation And Calibration In Financial Risk Management: High-Frequency Returns On Foreign Exchange," The Review of Economics and Statistics, MIT Press, vol. 81(4), pages 661-673, November. [Downloadable!] (restricted)
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  12. Mattias Villani & Malin Adolfson & Jesper Linde, 2005. "Forecasting Performance of an Open Economy Dynamic Stochastic General Equilibrium Model," Money Macro and Finance (MMF) Research Group Conference 2005 32, Money Macro and Finance Research Group. [Downloadable!]
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  13. Miles S. Kimball & Matthew D. Shapiro, 2008. "Labor Supply: Are the Income and Substitution Effects Both Large or Both Small?," NBER Working Papers 14208, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  17. Michele Boldrin & Lawrence J. Christiano & 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. [Downloadable!] (restricted)
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  18. Lawrence J. Christiano & Martin Eichenbaum & Charles L. Evans, 2005. "Nominal Rigidities and the Dynamic Effects of a Shock to Monetary Policy," Journal of Political Economy, University of Chicago Press, vol. 113(1), pages 1-45, February.
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  19. 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 2009-10, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
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  20. Sungbae An & Frank Schorfheide, 2007. "Bayesian Analysis of DSGE Models," Econometric Reviews, Taylor and Francis Journals, vol. 26(2-4), pages 113-172. [Downloadable!] (restricted)
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  21. Adolfson, Malin & Andersson, Michael K. & Lindé, Jesper & Villani, Mattias & Vredin, Anders, 2005. "Modern Forecasting Models in Action: Improving Macroeconomic Analyses at Central Banks," Working Paper Series 188, Sveriges Riksbank (Central Bank of Sweden), revised 01 Jun 2006. [Downloadable!]
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