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Forecasting the Spanish economy with an Augmented VAR-DSGE model

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Author Info
Gonzalo Fernández-de-Córdoba (Universidad de Salamanca)
José L. Torres (Universidad de Málaga)

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Abstract

During the past ten years Dynamic Stochastic General Equilibrium (DSGE) models have become an important tool in quantitative macroeconomics. However, DSGE models was not considered as a forecasting tool until very recently. The objective of this paper is twofold. First, we compare the forecasting ability of a canonical DSGE model for the Spanish economy with other standard econometric techniques. More precisely, we compare out-of-sample forecasts coming from different estimation methods of the DSGE model to the forecasts produced by a VAR and a Bayesian VAR. Second, we propose a new method for combining DSGE and VAR models (Augmented VAR-DSGE) through the expansion of the variable space where the VAR operates with artificial series obtained from a DSGE model. The results indicate that the out-of-sample forecasting performance of the proposed method outperforms all the considered alternatives.

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Publisher Info
Paper provided by Universidad de Málaga, Department of Economic Theory, Málaga Economic Theory Research Center in its series Working Papers with number 2009-1.

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Length: 23 pages
Date of creation: May 2009
Date of revision:
Handle: RePEc:mal:wpaper:2009-1

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Related research
Keywords: DSGE models; forecasting; VAR; BVAR;

Find related papers by JEL classification:
C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Other Model Applications
E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation

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