Forecasting in a DSGE Model with Banking Intermediation: Evidence from the US
44 Pages Posted: 11 Feb 2015
Date Written: February 9, 2015
This paper examines the forecasting performance of DSGE models with and without banking intermediation for the US economy. Over the forecast period 2001-2013, the model augmented with a banking sector leads to an improvement of point and density forecasts for inflation and the short term interest rate, while the better forecast for output depends on the forecasting horizon/period. To interpret this finding it is crucial to take into account parameters instabilities showed by a recursive-window estimation. Moreover, rolling estimates of point forecasts show that a banking sector helps improving the forecasting performance of output and inflation in the recent period.
Keywords: Bayesian estimation, Forecasting, Banking sector
JEL Classification: C11, C13, C32, E37
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