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Monetary Policy Forecasting in a DSGE Model with Data that is Uncertain, Unbalanced and About the Future

  • Andrés González Gómez


  • Lavan Mahadeva


  • Diego Rodríguez


  • Luis Eduardo Rojas


If theory-consistent models can ever hope to forecast well and to be useful for policy, they have to relate to data which though rich in information is uncertain, unbalanced and sometimes forecasts from external sources about the future path of other variables. One example from many is financial market data, which can help but only after smoothing out irrelevant short-term volatility. In this paper we propose combining different types of useful but awkward data set with a linearised forward-looking DSGE model through a Kalman Filter fixed-interval smoother to improve the utility of these models as policy tools. We apply this scheme to a model for Colombia.

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Paper provided by Banco de la Republica de Colombia in its series Borradores de Economia with number 559.

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Handle: RePEc:bdr:borrec:559
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  9. Andrés González & Lavan Mahadeva & Juan D. Prada & Diego Rodríguez, 2011. "Policy Analysis Tool Applied to Colombian Needs: PATACON Model Description," BORRADORES DE ECONOMIA 008698, BANCO DE LA REPÚBLICA.
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