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Forecasting performance of an open economy DSGE model
Stockholm University, Faculty of Social Sciences, Department of Statistics.
2007 (English)In: Econometric Reviews, ISSN 0747-4938, E-ISSN 1532-4168, Vol. 26, no 04-feb, 289-328 p.Article in journal (Refereed) Published
Abstract [en]

This paper analyzes the forecasting performance of an open economy dynamic stochastic general equilibrium (DSGE) model, estimated with Bayesian methods, for the Euro area during 1994Q1-2002Q4. We compare the DSGE model and a few variants of this model to various reduced form forecasting models such as vector autoregressions (VARs) and vector error correction models (VECM), estimated both by maximum likelihood and, two different Bayesian approaches, and traditional benchmark models, e.g., the random. walk. The accuracy of point forecasts, interval forecasts and the predictive distribution as a whole are assessed in, an out-of-sample rolling event evaluation using several univariate and multivariate measures. The results show that the open economy DSGE model compares well with more empirical models and thus that the tension between, rigor and fit in older generations of DSGE models is no longer present. We also critically examine the role of Bayesian model probabilities and other frequently used low-dimensional summaries, e.g., the log determinant statistic, as measures of overall forecasting performance.

Place, publisher, year, edition, pages
2007. Vol. 26, no 04-feb, 289-328 p.
Keyword [en]
Bayesian inference, forecasting, open economy DSGE model, vector autoregressive models
National Category
Probability Theory and Statistics Economics and Business
URN: urn:nbn:se:su:diva-56239DOI: 10.1080/07474930701220543ISI: 000246208500011OAI: diva2:410279
authorCount :3Available from: 2011-04-13 Created: 2011-04-12 Last updated: 2011-04-13Bibliographically approved

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