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Forecasting the Spanish economy with an augmented VAR–DSGE model

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  • Gonzalo Fernández-de-Córdoba
  • José Torres

    ()

Abstract

During the past ten years Dynamic Stochastic General Equilibrium (DSGE) models have become an important tool in quantitative macroeconomics. However, DSGE models was not considered as a forecasting tool until very recently. The objective of this paper is twofold. First, we compare the forecasting ability of a canonical DSGE model for the Spanish economy with other standard econometric techniques. More precisely, we compare out-of-sample forecasts coming from different estimation methods of the DSGE model to the forecasts produced by a VAR and a Bayesian VAR. Second, we propose a new method for combining DSGE and VAR models (Augmented VAR-DSGE) through the expansion of the variable space where the VAR operates with artificial series obtained from a DSGE model. The results indicate that the out-of-sample forecasting performance of the proposed method outperforms all the considered alternatives.
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Suggested Citation

  • Gonzalo Fernández-de-Córdoba & José Torres, 2011. "Forecasting the Spanish economy with an augmented VAR–DSGE model," SERIEs: Journal of the Spanish Economic Association, Springer;Spanish Economic Association, vol. 2(3), pages 379-399, September.
  • Handle: RePEc:spr:series:v:2:y:2011:i:3:p:379-399
    DOI: 10.1007/s13209-010-0036-1
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    Citations

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    Cited by:

    1. Stelios D. Bekiros & Alessia Paccagnini, 2016. "Policy‐Oriented Macroeconomic Forecasting with Hybrid DGSE and Time‐Varying Parameter VAR Models," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 35(7), pages 613-632, November.
    2. Bekiros Stelios & Paccagnini Alessia, 2015. "Estimating point and density forecasts for the US economy with a factor-augmented vector autoregressive DSGE model," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 19(2), pages 107-136, April.
    3. Luis E. Rojas, 2011. "Professional Forecasters: How to Understand and Exploit Them Through a DSGE Model," Borradores de Economia 664, Banco de la Republica de Colombia.
    4. Bekiros, Stelios D. & Paccagnini, Alessia, 2014. "Bayesian forecasting with small and medium scale factor-augmented vector autoregressive DSGE models," Computational Statistics & Data Analysis, Elsevier, vol. 71(C), pages 298-323.
    5. Lucian Liviu ALBU & Carlos MatéJIMÉNEZ & Mihaela SIMIONESCU, 2015. "The Assessment of Some Macroeconomic Forecasts for Spain using Aggregated Accuracy Indicators," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(2), pages 30-47, June.
    6. Bentour, El Mostafa, 2015. "A ranking of VAR and structural models in forecasting," MPRA Paper 61502, University Library of Munich, Germany.

    More about this item

    Keywords

    DSGE models; Forecasting; VAR; BVAR; C53; E32; E37;

    JEL classification:

    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications

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