Abstract

http://ssrn.com/abstract=2051008
 
 

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Evaluating DSGE Model Forecasts of Comovements


Frank Schorfheide


University of Pennsylvania - Department of Economics; Centre for Economic Policy Research (CEPR)

Edward Herbst


University of Pennsylvania

March 2, 2012

FEDS Working Paper No. 2012-11

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.

Number of Pages in PDF File: 43

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

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

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Date posted: May 4, 2012  

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: http://ssrn.com/abstract=2051008 or http://dx.doi.org/10.2139/ssrn.2051008

Contact Information

Frank Schorfheide
University of Pennsylvania - Department of Economics ( email )
3718 Locust Walk
Philadelphia, PA 19104
United States
HOME PAGE: http://www.econ.upenn.edu/~schorf
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
Edward Herbst (Contact Author)
University of Pennsylvania ( email )
Philadelphia, PA 19104
United States
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