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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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Keywords: Monetary policy; yield curve; general equilibrium; bayesian estimation;

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Cited by:
  1. Federico GIRI, 2014. "Does Interbank Market Matter for Business Cycle Fluctuation? An Estimated DSGE Model with Financial Frictions for the Euro Area," Working Papers 398, Universita' Politecnica delle Marche (I), Dipartimento di Scienze Economiche e Sociali.
  2. 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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