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Forecasting Canadian Time Series with the New-Keynesian Model

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  • Ali Dib
  • Mohamed Gammoudi
  • Kevin Moran

Abstract

This paper documents the out-of-sample forecasting accuracy of the New Keynesian Model for Canada. We repeatedly estimate our variant of the model on a series of rolling subsamples, forecasting out-of-sample one to eight quarters ahead at each step. We then compare these forecasts to those arising from simple VARs, using econometric tests of forecasting accuracy. Our results show that the forecasting accuracy of the New Keynesian model compares favourably to that of the benchmarks, particularly as the forecasting horizon increases. These results suggest that the model can become a useful forecasting tool for Canadian time series. The principle of parsimony is invoked to explain our findings.

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Bibliographic Info

Paper provided by CIRPEE in its series Cahiers de recherche with number 0527.

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Date of creation: 2005
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Handle: RePEc:lvl:lacicr:0527

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Keywords: New Keynesian Model; Forecasting accuracy;

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References

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Citations

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Cited by:
  1. Kitov, Ivan, 2007. "Exact prediction of inflation and unemployment in Canada," MPRA Paper 5015, University Library of Munich, Germany.
  2. Adnan Haider & Musleh ud Din & Ejaz Ghani, 2012. "Monetary Policy, Informality and Business Cycle Fluctuations in a Developing Economy Vulnerable to External Shocks," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 51(4), pages 609-682.
  3. Ali Dib, 2003. "Monetary Policy in Estimated Models of Small Open and Closed Economies," Working Papers 03-27, Bank of Canada.
  4. Tobias Kitlinski & Torsten Schmidt, 2011. "The Forecasting Performance of an Estimated Medium Run Model," Ruhr Economic Papers 0301, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
  5. Caraiani, Petre, 2008. "Forecasting Romanian GDP Using a Small DSGE Model," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 5(1), pages 182-192, March.
  6. Christopher Reicher, 2009. "What Can a New Keynesian Labor Matching Model Match?," Kiel Working Papers 1496, Kiel Institute for the World Economy.
  7. Sylvain Dessy & Safa Ragued, 2013. "Multidimensional Poverty Targeting," Cahiers de recherche 1340, CIRPEE.
  8. Jean-Philippe Cayen & Marc-André Gosselin & Sharon Kozicki, 2009. "Estimating DSGE-Model-Consistent Trends for Use in Forecasting," Working Papers 09-35, Bank of Canada.
  9. Manuel Ramos Francia & Alberto Torres García, 2006. "Inflation Dynamics in Mexico: A Characterization Using the New Phillips Curve," Working Papers 2006-15, Banco de México.
  10. Alessia Paccagnini, 2012. "Comparing Hybrid DSGE Models," Working Papers 228, University of Milano-Bicocca, Department of Economics, revised Dec 2012.

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