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A new approach to multi-step forecasting using dynamic stochastic general equilibrium models

Author

Listed:
  • Kapetanious, George

    (Bank of England)

  • Price, Simon

    (Bank of England)

  • Theodoridis, Konstantinos

    (Bank of England)

Abstract

DSGE models are of interest because they offer structural interpretations, but are also increasingly used for forecasting. Estimation often proceeds by methods which involve building the likelihood by one-step ahead (h=1) prediction errors. However in principle this can be done using different horizons where h>1. Using the well-known model of Smets and Wouters (2007), for h=1 classical ML parameter estimates are similar to those originally reported. As h extends some estimated parameters change, but not to an economically significant degree. Forecast performance is often improved, in several cases significantly.

Suggested Citation

  • Kapetanious, George & Price, Simon & Theodoridis, Konstantinos, 2015. "A new approach to multi-step forecasting using dynamic stochastic general equilibrium models," Bank of England working papers 567, Bank of England.
    • Handle: RePEc:boe:boeewp:0567
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    References listed on IDEAS

    as
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    Cited by:

    1. Michal Franta, 2016. "Iterated Multi-Step Forecasting with Model Coefficients Changing Across Iterations," Working Papers 2016/05, Czech National Bank.

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    More about this item

    Keywords

    DSGE models; multi-step prediction errors; forecasting.;
    All these keywords.

    JEL classification:

    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling

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