DSGE Model-Based Forecasting of Non-Modelled Variables

43 Pages Posted: 19 Sep 2008

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)

Keith Sill

affiliation not provided to SSRN

Maxym Kryshko

University of Pennsylvania - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: September 8, 2008

Abstract

This paper develops and illustrates a simple method to generate a DSGE model-based forecast for variables that do not explicitly appear in the model (non-core variables). We use auxiliary regressions that resemble measurement equations in a dynamic factor model to link the non-core variables to the state variables of the DSGE model. Predictions for the non-core variables are obtained by applying their measurement equations to DSGE model-generated forecasts of the state variables. Using a medium-scale New Keynesian DSGE model, we apply our approach to generate and evaluate recursive forecasts for PCE inflation, core PCE inflation, and the unemployment rate along with predictions for the seven variables that have been used to estimate the DSGE model.

Keywords: Bayesian Analysis, DSGE Models, Forecasting

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

Suggested Citation

Schorfheide, Frank and Sill, Keith and Kryshko, Maxym, DSGE Model-Based Forecasting of Non-Modelled Variables (September 8, 2008). FRB of Philadelphia Working Paper No. 08-17, Available at SSRN: https://ssrn.com/abstract=1268319 or http://dx.doi.org/10.2139/ssrn.1268319

Frank Schorfheide (Contact Author)

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

Keith Sill

affiliation not provided to SSRN

Maxym Kryshko

University of Pennsylvania - Department of Economics ( email )

Ronald O. Perelman Center for Political Science
133 South 36th Street
Philadelphia, PA 19104-6297
United States
(215) 746-0363 (Phone)

HOME PAGE: http://www.sas.upenn.edu/~mkryshko

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