An Empirical BVAR-DSGE Model of the Australian Economy
AbstractIn this paper, we develop a multi-sector dynamic stochastic general equilibrium (DSGE) model with a simple commodity sector and assess whether forecasts from this model can be improved by using it as a prior for an empirical Bayesian vector autoregression (BVAR). We treat the world economy as being observed and exogenous to the small economy, rather than unobserved, as has been done in some previous studies, such as Hodge, Robinson and Stuart (2008) and Lees, Matheson and Smith (2011). We find that the forecasts from a BVAR that uses this DSGE model as a prior are generally more accurate than those from the DSGE model alone. Nevertheless, these forecasts do not outperform a small open economy VAR estimated using other standard priors or simple univariate benchmarks.
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Bibliographic InfoPaper provided by Reserve Bank of Australia in its series RBA Research Discussion Papers with number rdp2013-07.
Date of creation: Jun 2013
Date of revision:
Find related papers by JEL classification:
- C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
- E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-06-09 (All new papers)
- NEP-DGE-2013-06-09 (Dynamic General Equilibrium)
- NEP-FOR-2013-06-09 (Forecasting)
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