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Short-term forecasting of GDP with a DSGE model augmented by monthly indicators

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  • Červená, Marianna
  • Schneider, Martin

Abstract

DSGE models are useful tools for evaluating the impact of policy changes, but their use for (short-term) forecasting is still in its infancy. Besides theory-based restrictions, the timeliness of data is an important issue. Since DSGE models are based on quarterly data, they suffer from the publication lag of quarterly national accounts. In this paper we present a framework for the short-term forecasting of GDP based on a medium-scale DSGE model for a small open economy within a currency area. We utilize the information available in monthly indicators based on the approach proposed by Giannone et al. (2009). Using Austrian data, we find that the forecasting performance of the DSGE model can be improved considerably by incorporating monthly indicators, while still maintaining the story-telling capability of the model.

Suggested Citation

  • Červená, Marianna & Schneider, Martin, 2014. "Short-term forecasting of GDP with a DSGE model augmented by monthly indicators," International Journal of Forecasting, Elsevier, vol. 30(3), pages 498-516.
    • Handle: RePEc:eee:intfor:v:30:y:2014:i:3:p:498-516
    DOI: 10.1016/j.ijforecast.2014.01.005
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    7. Smets, Frank & Warne, Anders & Wouters, Rafael, 2014. "Professional forecasters and real-time forecasting with a DSGE model," International Journal of Forecasting, Elsevier, vol. 30(4), pages 981-995.

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