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The role of money in DSGE models: a forecasting perspective

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  • Caraiani, Petre

Abstract

This paper studies the importance of money in a New Keynesian model by considering the forecasting performance of DSGE models both without and with money. While the estimation results are in line with previous studies, favoring the inclusion of money mostly in the form of portfolio adjustment and policy effects, a few interesting results emerge with respect to the accuracy of forecasts. Along with the various filtering methods and forecasting methods used (both recursive and rolling), in many cases money tends to improve the forecasts, either for point forecasts, density forecasts or both. However, the detrending method seems to influence the particular findings. Paradoxically, the absence of a portfolio adjustment costs channel tends to generally improve the accuracy of forecasts.

Suggested Citation

  • Caraiani, Petre, 2016. "The role of money in DSGE models: a forecasting perspective," Journal of Macroeconomics, Elsevier, vol. 47(PB), pages 315-330.
  • Handle: RePEc:eee:jmacro:v:47:y:2016:i:pb:p:315-330
    DOI: 10.1016/j.jmacro.2015.10.001
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    References listed on IDEAS

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    Cited by:

    1. Benchimol, Jonathan, 2016. "Money and monetary policy in Israel during the last decade," Journal of Policy Modeling, Elsevier, vol. 38(1), pages 103-124.
    2. Kőrösi, Gábor, 2016. "A lány továbbra is szolgál..
      [Modelling and econometrics]
      ," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(6), pages 647-667.
    3. Jonathan Benchimol & Makram El-Shagi, 2017. "Forecast Performance in Times of Terrorism," CFDS Discussion Paper Series 2017/1, Center for Financial Development and Stability at Henan University, Kaifeng, Henan, China.

    More about this item

    Keywords

    DSGE; Money; Forecasting;

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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