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Testing a DSGE model and its partner database

  • Lavan Mahadeva

    ()

  • Juan Carlos parra

    ()

There is now an impetus to apply dynamic stochastic general equilibrium models to forecasting. But thesemodels typically rely on purpose-built data, for example on tradable and nontradable sector outputs.How then do we know that the model will forecast well, in advance? We develop an early warning test ofthe database-model match and apply that to a Colombian model. Our test reveals where the combinationshould work (consumption) and where not (in investment). The test can be adapted to look at manylikely sources of DSGE model failure.

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Paper provided by BANCO DE LA REPÚBLICA in its series BORRADORES DE ECONOMIA with number 004507.

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Length: 66
Date of creation: 29 Jan 2008
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Handle: RePEc:col:000094:004507
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