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Forecasting Canadian time series with the New Keynesian model

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  • Ali Dib
  • Mohamed Gammoudi
  • Kevin Moran

Abstract

. This paper assesses the out‐of‐sample forecasting accuracy of the New Keynesian Model for Canada. We estimate a variant of the model on a series of rolling subsamples, computing out‐of‐sample forecasts one to eight quarters ahead at each step. We compare these forecasts with those arising from vector autoregression (VAR) models, using econometric tests of forecasting accuracy. We show that the forecasting accuracy of the New Keynesian Model compares favourably with that of the benchmarks, particularly as the forecasting horizon increases. These results suggest that the model could become a useful forecasting tool for Canadian time series. Ce mémoire évalue la précision des prévisions d'un nouveau modèle keynésien pour le Canada à partir d'échantillons. On calibre une variante du modèle sur la base d'une série de sous échantillons récurrents de prévisions de un à huit trimestres d'avance à chaque étape. On compare ces prévisions à celles qui émergent de modèles d'auto régression vectorielle (VAR) en utilisant des tests économétriques de précision de prévision. On montre que la précision des prévisions du nouveau modèle keynésien se compare favorablement à celles des prévisions de référence, particulièrement à proportion que l'horizon temporel s'accroît. Ces résultats suggèrent que le modèle peut devenir un instrument utile de prévision pour les séries chronologiques canadiennes.

Suggested Citation

  • Ali Dib & Mohamed Gammoudi & Kevin Moran, 2008. "Forecasting Canadian time series with the New Keynesian model," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 41(1), pages 138-165, February.
  • Handle: RePEc:wly:canjec:v:41:y:2008:i:1:p:138-165
    DOI: 10.1111/j.1365-2966.2008.00458.x
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    Cited by:

    1. Adnan Haider Bukhari & Safdar Ullah Khan, 2008. "A Small Open Economy DSGE Model for Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 47(4), pages 963-1008.
    2. Ian Christensen & Paul Corrigan & Caterina Mendicino & Shin‐Ichi Nishiyama, 2016. "Consumption, housing collateral and the Canadian business cycle," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 49(1), pages 207-236, February.
    3. Alessia Paccagnini, 2012. "Comparing Hybrid DSGE Models," Working Papers 228, University of Milano-Bicocca, Department of Economics, revised Dec 2012.
    4. Kitlinski, Tobias & Schmidt, Torsten, 2011. "The Forecasting Performance of an Estimated Medium Run Model," Ruhr Economic Papers 301, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    5. Ali Dib & Mohamed Gammoudi & Kevin Moran, 2008. "Forecasting Canadian time series with the New Keynesian model," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 41(1), pages 138-165, February.
    6. Tobias Kitlinski & Torsten Schmidt, 2011. "The Forecasting Performance of an Estimated Medium Run Model," Ruhr Economic Papers 0301, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
    7. Wing Leong Teo, 2009. "Estimated Dynamic Stochastic General Equilibrium Model Of The Taiwanese Economy," Pacific Economic Review, Wiley Blackwell, vol. 14(2), pages 194-231, May.
    8. Ramos-Francia, Manuel & Torres, Alberto, 2008. "Inflation dynamics in Mexico: A characterization using the New Phillips curve," The North American Journal of Economics and Finance, Elsevier, vol. 19(3), pages 274-289, December.
    9. repec:zbw:rwirep:0301 is not listed on IDEAS
    10. Ali Dib, 2011. "Monetary Policy in Estimated Models of Small Open and Closed Economies," Open Economies Review, Springer, vol. 22(5), pages 769-796, November.
    11. Harvey, David I. & Leybourne, Stephen J. & Whitehouse, Emily J., 2017. "Forecast evaluation tests and negative long-run variance estimates in small samples," International Journal of Forecasting, Elsevier, vol. 33(4), pages 833-847.
    12. Mossadak, Anas, 2013. "Monetary and Fiscal Policy in an Estimated DSGE Model for Morocco," MPRA Paper 104579, University Library of Munich, Germany, revised 2013.
    13. Sylvain Dessy & Safa Ragued, 2013. "Whither the Progressive Tax?," Cahiers de recherche 1340, CIRPEE.
    14. Caterina Mendicino & Yahong Zhang, 2016. "Risk Shocks in a Small Open Economy," Working Papers 1602, University of Windsor, Department of Economics.
    15. Reicher, Christopher Phillip, 2009. "What can a New Keynesian labor matching model match?," Kiel Working Papers 1496, Kiel Institute for the World Economy (IfW Kiel).
    16. Caraiani, Petre, 2008. "Forecasting Romanian GDP Using a Small DSGE Model," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 5(1), pages 182-192, March.
    17. Adnan Haider & Musleh ud Din & Ejaz Ghani, 2012. "Monetary Policy, Informality and Business Cycle Fluctuations in a Developing Economy Vulnerable to External Shocks," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 51(4), pages 609-681.
    18. Kitov, Ivan, 2007. "Exact prediction of inflation and unemployment in Canada," MPRA Paper 5015, University Library of Munich, Germany.
    19. Mendicino, Caterina & Zhang, Yahong, 2018. "Risk shocks in a small open economy: Business cycle dynamics in Canada," Economic Modelling, Elsevier, vol. 72(C), pages 391-409.
    20. Ramos Francia Manuel & Torres García Alberto, 2006. "Inflation Dynamics in Mexico: A Characterization Using the New Phillips Curve," Working Papers 2006-15, Banco de México.
    21. Jean-Philippe Cayen & Marc-André Gosselin & Sharon Kozicki, 2009. "Estimating DSGE-Model-Consistent Trends for Use in Forecasting," Staff Working Papers 09-35, Bank of Canada.

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    JEL classification:

    • 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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