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The Forecasting Performance of an Estimated Medium Run Model

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  • Kitlinski, Tobias
  • Schmidt, Torsten

Abstract

In recent times DSGE models came more and more into the focus of forecasters and showed promising forecast performances for the short term. We contribute to the existing literature by analyzing the forecast power of a DSGE model including endogenous growth for the medium run. Instead of only calibrating the model we apply a mixture of calibrating and estimating using Bayesian estimation methods. As forecasting benchmarks we take the Smets-Wouters model (2007) and a VAR model. The evaluation of the forecast errors shows that the Medium-Term model outperforms the Smets-Wouters model with respect to some key macroeconomic variables in the medium run. Compared to the VAR model the Medium-Term model forecast performance is competitive. These results show that the forecast ability of DSGE models is also valid for the medium term.

Suggested Citation

  • 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.
    • Handle: RePEc:zbw:rwirep:301
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    More about this item

    Keywords

    Bayesian analysis; DSGE model; medium run; forecasting; Bayesian analysis; DSGE model; medium run; forecasting;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • 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

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