Evaluating DSGE Model Forecasts of Comovements

43 Pages Posted: 4 May 2012  

Frank Schorfheide

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

Edward Herbst

University of Pennsylvania

Multiple version iconThere are 2 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 )

160 McNeil Building
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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