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Forecasting with a DSGE Model of the term Structure of Interest Rates: The Role of the Feedback

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  • Zagaglia, Paolo

    ()
    (Dept. of Economics, Stockholm University)

Abstract

This paper studies the forecasting performance of the general equilibrium model of bond yields of Marzo, Söderström and Zagaglia (2008), where long-term interest rates are an integral part of the monetary transmission mechanism. The model is estimated with Bayesian methods on Euro area data. I investigate the out-of-sample predictive performance across different model specifications, including that of De Graeve, Emiris and Wouters (2009). The accuracy of point forecasts is evaluated through both univariate and multivariate accuracy measures. I show that taking into account the impact of the term structure of interest rates on the macroeconomy generates superior out-of-sample forecasts for both real variables, such as output, and inflation, and for bond yields.

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Bibliographic Info

Paper provided by Stockholm University, Department of Economics in its series Research Papers in Economics with number 2009:14.

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Length: 43 pages
Date of creation: 20 May 2009
Date of revision:
Handle: RePEc:hhs:sunrpe:2009_0014

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Postal: Department of Economics, Stockholm, S-106 91 Stockholm, Sweden
Phone: +46 8 16 20 00
Fax: +46 8 16 14 25
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Web page: http://www.ne.su.se/
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Keywords: Monetary policy; yield curve; general equilibrium; bayesian estimation;

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References

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Cited by:
  1. Semko, Roman, 2011. "Bayesian estimation of small-scale DSGE model of the Ukrainian economy," MPRA Paper 35215, University Library of Munich, Germany.

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