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Open economy forecasting with a DSGE-VAR: Head to head with the RBNZ published forecasts

  • Lees, Kirdan
  • Matheson, Troy
  • Smith, Christie

We construct a DSGE-VAR model for competing head to head with the long history of published forecasts of the Reserve Bank of New Zealand. We also construct a Bayesian VAR model with a Minnesota prior for forecast comparison. The DSGE-VAR model combines a structural DSGE model with a statistical VAR model based on the in-sample fit over the majority of New Zealand's inflation-targeting period. We evaluate the real-time out-of-sample forecasting performance of the DSGE-VAR model, and show that the forecasts from the DSGE-VAR are competitive with the Reserve Bank of New Zealand's published, judgmentally-adjusted forecasts. The Bayesian VAR model with a Minnesota prior also provides a competitive forecasting performance, and generally, with a few exceptions, out-performs both the DSGE-VAR and the Reserve Bank's own forecasts.

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Article provided by Elsevier in its journal International Journal of Forecasting.

Volume (Year): 27 (2011)
Issue (Month): 2 (April)
Pages: 512-528

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Handle: RePEc:eee:intfor:v:27:y::i:2:p:512-528
Contact details of provider: Web page: http://www.elsevier.com/locate/ijforecast

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