Evaluating DSGE Model Forecasts of Comovements

43 Pages Posted: 4 May 2012

See all articles by Frank Schorfheide

Frank Schorfheide

University of Pennsylvania - Department of Economics; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER); University of Pennsylvania - The Penn Institute for Economic Research (PIER)

Edward Herbst

University of Pennsylvania

Multiple version iconThere are 4 versions of this paper

Date Written: March 2, 2012

Abstract

This paper develops and applies tools to assess multivariate aspects of Bayesian Dynamic Stochastic General Equilibrium (DSGE) model forecasts and their ability to predict comovements among key macroeconomic variables. We construct posterior predictive checks to evaluate conditional and unconditional density forecasts, in addition to checks for root-mean-squared errors and event probabilities associated with these forecasts. The checks are implemented on a three-equation DSGE model as well as the Smets and Wouters (2007) model using real-time data. We find that the additional features incorporated into the Smets-Wouters model do not lead to a uniform improvement in the quality of density forecasts and prediction of comovements of output, inflation, and interest rates.

Keywords: Bayesian methods, DSGE models, forecast evaluation, macroeconomic forecasting

JEL Classification: C11, C32, C53, E27, E47

Suggested Citation

Schorfheide, Frank and Herbst, Edward, Evaluating DSGE Model Forecasts of Comovements (March 2, 2012). FEDS Working Paper No. 2012-11, Available at SSRN: https://ssrn.com/abstract=2051008 or http://dx.doi.org/10.2139/ssrn.2051008

Frank Schorfheide

University of Pennsylvania - Department of Economics ( email )

Ronald O. Perelman Center for Political Science
133 South 36th Street
Philadelphia, PA 19104-6297
United States

HOME PAGE: http://www.econ.upenn.edu/~schorf

Centre for Economic Policy Research (CEPR)

London
United Kingdom

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

University of Pennsylvania - The Penn Institute for Economic Research (PIER) ( email )

Philadelphia, PA
United States

Edward Herbst (Contact Author)

University of Pennsylvania ( email )

Philadelphia, PA 19104
United States

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