How Frequently Should We Re-Estimate DSGE Models?

National Bank of Poland Working Paper No. 184

31 Pages Posted: 19 Aug 2015 Last revised: 8 Jul 2016

See all articles by Marcin Kolasa

Marcin Kolasa

National Bank of Poland; Warsaw School of Economics (SGH)

Michał Rubaszek

National Bank of Poland; Warsaw School of Economics (SGH)

Date Written: December 15, 2014

Abstract

A common practice in policy making institutions using DSGE models for forecasting is to re-estimate them only occasionally rather than every forecasting round. In this paper we ask how such a practice affects the accuracy of DSGE model-based forecasts. To this end we use a canonical medium-sized New Keynesian model and compare how its quarterly real-time forecasts for the US economy vary with the interval between consecutive re-estimations. We find that updating the model parameters only once a year usually does not lead to any significant deterioration in the accuracy of point forecasts. On the other hand, there are some gains from increasing the frequency of re-estimation if one is interested in the quality of density forecasts.

Keywords: forecasting; DSGE models; parameter updating

JEL Classification: C53; E37

Suggested Citation

Kolasa, Marcin and Rubaszek, Michal, How Frequently Should We Re-Estimate DSGE Models? (December 15, 2014). National Bank of Poland Working Paper No. 184. Available at SSRN: https://ssrn.com/abstract=2646625 or http://dx.doi.org/10.2139/ssrn.2646625

Marcin Kolasa (Contact Author)

National Bank of Poland ( email )

00-919 Warsaw
Poland

Warsaw School of Economics (SGH) ( email )

aleja Niepodleglosci 162
PL-Warsaw, 02-554
Poland

Michal Rubaszek

National Bank of Poland ( email )

00-919 Warsaw
Poland

Warsaw School of Economics (SGH) ( email )

aleja Niepodleglosci 162
PL-Warsaw, 02-554
Poland

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