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Forecasting a commodity-exporting small open developing economy using DSGE and DSGE-BVAR

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  • Erlan Konebayev

    (NAC Analytica, Nazarbayev University)

Abstract

In this paper, we assess the forecasting performance of three types of structural models - DSGE, BVAR with Minnesota priors, and DSGE-BVAR - in the context of a commodity-exporting small open developing economy using the data for Kazakhstan. We find that BVAR and DSGE-BVAR models generally produce point forecasts that are more accurate and less biased compared to those of DSGE in the short term, and that BVAR forecasts rapidly deteriorate in quality as the length of the forecast horizon increases. The density forecast analysis shows that when all variables are considered, one of the BVAR models performs better than DSGE at the one quarter horizon, and when financial sector variables are omitted, one DSGE-BVAR and both BVAR models demonstrate superior performance in the short term.

Suggested Citation

  • Erlan Konebayev, 2022. "Forecasting a commodity-exporting small open developing economy using DSGE and DSGE-BVAR," NAC Analytica Working Paper 24, NAC Analytica, Nazarbayev University, revised May 2022.
  • Handle: RePEc:ajx:wpaper:24
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    More about this item

    Keywords

    DSGE; DSGE-BVAR; Bayesian estimation; forecasting; small open economy;
    All these keywords.

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation: Models and Applications
    • 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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