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DSGE Model-Based Forecasting of Non-modelled Variables

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  • Frank Schorfheide
  • Keith Sill
  • Maxym Kryshko

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). We 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, we apply our approach to generate and evaluate recursive forecasts for PCE inflation, core PCE inflation, the unemployment rate, and housing starts along with predictions for the seven variables that have been used to estimate the DSGE model.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 14872.

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Date of creation: Apr 2009
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Handle: RePEc:nbr:nberwo:14872

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Cited by:
  1. Andrés González Gómez & Lavan Mahadeva & Diego Rodríguez & Luis Eduardo Rojas, . "Monetary Policy Forecasting in a DSGE Model with Data that is Uncertain, Unbalanced and About the Future," Borradores de Economia 559, Banco de la Republica de Colombia.
  2. Alessia Paccagnini, 2012. "Comparing Hybrid DSGE Models," Working Papers 228, University of Milano-Bicocca, Department of Economics, revised Dec 2012.
  3. Stelios Bekiros & Alessia Paccagnini, 2013. "On the predictability of time-varying VAR and DSGE models," Empirical Economics, Springer, vol. 45(1), pages 635-664, August.
  4. Rangan Gupta & Rudi Steinbach, 2010. "Forecasting Key Macroeconomic Variables of the South African Economy: A Small Open Economy New Keynesian DSGE-VAR Model," Working Papers 201019, University of Pretoria, Department of Economics.
  5. Rangan Gupta &  Patrick Kanda & Mampho Modise & Alessia Paccagnini, 2013. "DGSE Model-Based Forecasting of Modeled and Non-Modeled Inflation Variables in South Africa," Working Papers 259, University of Milano-Bicocca, Department of Economics, revised Nov 2013.
  6. Shaun P Vahey & Elizabeth C Wakerly, 2013. "Moving towards probability forecasting," BIS Papers chapters, in: Bank for International Settlements (ed.), Globalisation and inflation dynamics in Asia and the Pacific, volume 70, pages 3-8 Bank for International Settlements.
  7. Herbst, Edward & Schorfheide, Frank, 2012. "Evaluating DSGE model forecasts of comovements," Journal of Econometrics, Elsevier, vol. 171(2), pages 152-166.
  8. Ida Wolden Bache & Anne Sofie Jore & James Mitchell & Shaun P. Vahey, 2009. "Combining VAR and DSGE forecast densities," Working Paper 2009/23, Norges Bank.
  9. Martin Fukac & Vladimir Havlena, 2011. "Note on the role of natural condition of control in the estimation of DSGE models," Research Working Paper RWP 11-03, Federal Reserve Bank of Kansas City.
  10. Marco Del Negro & Frank Schorfheide, 2012. "DSGE model-based forecasting," Staff Reports 554, Federal Reserve Bank of New York.

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