IDEAS home Printed from https://ideas.repec.org/a/ijc/ijcjou/y2016q1a2.html
   My bibliography  Save this article

A Forecasting Metric for Evaluating DSGE Models for Policy Analysis

Author

Listed:
  • Abhishek Gupta

Abstract

This paper evaluates the strengths and weaknesses of a dynamic stochastic general equilibrium (DSGE) model from the standpoint of its usefulness in doing monetary policy analysis. The paper isolates cross-correlations among one-step-ahead forecast errors as the most relevant feature for practical monetary policymaking and uses the diagnostic tools of posterior predictive analysis to evaluate them. The paper accounts for the observed flaws in the model with regards to these features using the correlation structure among the estimated shocks. This corresponds to testing and rejecting the over-identifying restriction of no correlation among the structural shocks in the model. The paper attributes this correlation among the estimated structural shocks to model misspecification.

Suggested Citation

  • Abhishek Gupta, 2016. "A Forecasting Metric for Evaluating DSGE Models for Policy Analysis," International Journal of Central Banking, International Journal of Central Banking, vol. 12(1), pages 33-65, March.
  • Handle: RePEc:ijc:ijcjou:y:2016:q:1:a:2
    as

    Download full text from publisher

    File URL: http://www.ijcb.org/journal/ijcb16q1a2.pdf
    Download Restriction: no

    File URL: http://www.ijcb.org/journal/ijcb16q1a2.htm
    Download Restriction: no

    References listed on IDEAS

    as
    1. Faust, Jon & Gupta, Abhishek, 2010. "Posterior Predictive Analysis for Evaluating DSGE Models," MPRA Paper 26721, University Library of Munich, Germany.
    2. Francis, Neville & Ramey, Valerie A., 2005. "Is the technology-driven real business cycle hypothesis dead? Shocks and aggregate fluctuations revisited," Journal of Monetary Economics, Elsevier, vol. 52(8), pages 1379-1399, November.
    3. Frank Smets & Raf Wouters, 2003. "An Estimated Dynamic Stochastic General Equilibrium Model of the Euro Area," Journal of the European Economic Association, MIT Press, vol. 1(5), pages 1123-1175, September.
    Full references (including those not matched with items on IDEAS)

    More about this item

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • E1 - Macroeconomics and Monetary Economics - - General Aggregative Models
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ijc:ijcjou:y:2016:q:1:a:2. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Bank for International Settlements). General contact details of provider: https://www.ijcb.org/ .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.