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Forecasting In a Non-Linear DSGE Model

  • Sergey Ivashchenko

A medium-scale nonlinear dynamic stochastic general equilibrium (DSGE) model is estimated (54 variables, 29 state variables, 7 observed variables). The model includes a observed variable for stock market returns. The root-mean square error (RMSE) of the in-sample and out-of-sample forecasts is calculated. The nonlinear DSGE model with measurement errors outperforms AR (1), VAR (1) and the linearized DSGE in terms of the quality of the out-of-sample forecasts. The nonlinear DSGE model without measurement errors is actually of a quality equal to that of the linearized DSGE model.

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Paper provided by European University at St. Petersburg, Department of Economics in its series EUSP Deparment of Economics Working Paper Series with number Ec-02/14.

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Length: 23 pages
Date of creation: 17 May 2014
Date of revision:
Handle: RePEc:eus:wpaper:ec0214
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