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A new approach to multi-step forecasting using dynamic stochastic general equilibrium models

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  • Kapetanios, George
  • Price, Simon
  • Theodoridis, Konstantinos

Abstract

DSGE models are of interest because they offer structural interpretations, but are also increasingly used for forecasting. Estimation often proceeds by methods which involve building the likelihood by one-step ahead (h=1) prediction errors. However in principle this can be done using different horizons where h>1. Using the well-known model of Smets and Wouters (2007), for h=1 classical ML parameter estimates are similar to those originally reported. As h extends some estimated parameters change, but not to an economically significant degree. Forecast performance is often improved, in several cases significantly.

Suggested Citation

  • Kapetanios, George & Price, Simon & Theodoridis, Konstantinos, 2015. "A new approach to multi-step forecasting using dynamic stochastic general equilibrium models," Economics Letters, Elsevier, vol. 136(C), pages 237-242.
  • Handle: RePEc:eee:ecolet:v:136:y:2015:i:c:p:237-242
    DOI: 10.1016/j.econlet.2015.09.034
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    References listed on IDEAS

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    Cited by:

    1. Michal Franta, 2016. "Iterated Multi-Step Forecasting with Model Coefficients Changing Across Iterations," Working Papers 2016/05, Czech National Bank, Research Department.

    More about this item

    Keywords

    DSGE models; Multi-step errors; Forecasting;

    JEL classification:

    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling

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