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Forecasting Canadian Time Series with the New Keynesian Model

Author

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  • Ali Dib
  • Mohamed Gammoudi
  • Kevin Moran

Abstract

The authors document the out-of-sample forecasting accuracy of the New Keynesian model for Canada. They estimate their variant of the model on a series of rolling subsamples, computing out-of-sample forecasts one to eight quarters ahead at each step. They compare these forecasts with those arising from simple vector autoregression (VAR) models, using econometric tests of forecasting accuracy. Their results 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. The authors invoke the principle of parsimony to explain their findings.

Suggested Citation

  • Ali Dib & Mohamed Gammoudi & Kevin Moran, 2006. "Forecasting Canadian Time Series with the New Keynesian Model," Staff Working Papers 06-4, Bank of Canada.
  • Handle: RePEc:bca:bocawp:06-4
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    References listed on IDEAS

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    Cited by:

    1. Adnan Haider & Musleh-ud Din & Ejaz Ghani, 2013. "Monetary Policy, Informality and Business Cycle Fluctuations in a Developing Economy Vulnerable to External Shocks," SBP Working Paper Series 65, State Bank of Pakistan, Research Department.
    2. Adnan Haider Bukhari & Safdar Ullah Khan, 2008. "A Small Open Economy DSGE Model for Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, pages 963-1008.
    3. 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.
    4. David I. Harvey & Stephen J. Leybourne & Emily J. Whitehouse, "undated". "Forecast evaluation tests and negative long-run variance estimates in small samples," Discussion Papers 17/03, University of Nottingham, Granger Centre for Time Series Econometrics.
    5. Reicher, Christopher Phillip, 2009. "What can a New Keynesian labor matching model match?," Kiel Working Papers 1496, Kiel Institute for the World Economy (IfW).
    6. 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.
    7. Alessia Paccagnini, 2012. "Comparing Hybrid DSGE Models," Working Papers 228, University of Milano-Bicocca, Department of Economics, revised Dec 2012.
    8. repec:zbw:rwirep:0301 is not listed on IDEAS
    9. Ali Dib, 2011. "Monetary Policy in Estimated Models of Small Open and Closed Economies," Open Economies Review, Springer, pages 769-796.
    10. 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.
    11. repec:eee:intfor:v:33:y:2017:i:4:p:833-847 is not listed on IDEAS
    12. Caraiani, Petre, 2008. "Forecasting Romanian GDP Using a Small DSGE Model," Journal for Economic Forecasting, Institute for Economic Forecasting, pages 182-192.
    13. Kitov, Ivan, 2007. "Exact prediction of inflation and unemployment in Canada," MPRA Paper 5015, University Library of Munich, Germany.
    14. Sylvain Dessy & Safa Ragued, 2013. "Whither the Progressive Tax?," Cahiers de recherche 1340, CIRPEE.
    15. 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.
    16. Ibarra, Raul, 2013. "A spatial dominance approach to evaluate the performance of stocks and bonds: Does the investment horizon matter?," The Quarterly Review of Economics and Finance, Elsevier, pages 429-439.

    More about this item

    Keywords

    Business fluctuations and cycles; Economic models; Econometric and statistical methods;

    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
    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General

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