Evaluating DSGE Model Forecasts of Comovements

45 Pages Posted: 21 Jan 2011

See all articles by Edward Herbst

Edward Herbst

University of Pennsylvania

Frank Schorfheide

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

Multiple version iconThere are 3 versions of this paper

Date Written: January 12, 2011

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. The authors construct posterior predictive checks to evaluate the calibration of 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. They 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

Herbst, Edward and Schorfheide, Frank, Evaluating DSGE Model Forecasts of Comovements (January 12, 2011). FRB of Philadelphia Working Paper No. 11-5. Available at SSRN: https://ssrn.com/abstract=1744127 or http://dx.doi.org/10.2139/ssrn.1744127

Edward Herbst (Contact Author)

University of Pennsylvania ( email )

Philadelphia, PA 19104
United States

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

Register to save articles to
your library

Register

Paper statistics

Downloads
64
Abstract Views
618
rank
260,143
PlumX Metrics