Evaluating Point and Density Forecasts of DSGE Models
Article first published online: 27 NOV 2013
Copyright © 2013 John Wiley & Sons, Ltd.
Journal of Applied Econometrics
Volume 30, Issue 1, pages 74–96, January/February 2015
How to Cite
2015), Evaluating Point and Density Forecasts of DSGE Models, J. Appl. Econ., 30, pages 74–96, doi: 10.1002/jae.2363(
- Issue published online: 28 JAN 2015
- Article first published online: 27 NOV 2013
- Manuscript Revised: 3 SEP 2013
- Manuscript Received: 14 MAR 2012
This paper investigates the accuracy of forecasts from four dynamic stochastic general equilibrium (DSGE) models for inflation, output growth and the federal funds rate using a real-time dataset synchronized with the Fed's Greenbook projections. Conditioning the model forecasts on the Greenbook nowcasts leads to forecasts that are as accurate as the Greenbook projections for output growth and the federal funds rate. Only for inflation are the model forecasts dominated by the Greenbook projections. A comparison with forecasts from Bayesian vector autoregressions shows that the economic structure of the DSGE models which is useful for the interpretation of forecasts does not lower the accuracy of forecasts. Combining forecasts of several DSGE models increases precision in comparison to individual model forecasts. Comparing density forecasts with the actual distribution of observations shows that DSGE models overestimate uncertainty around point forecasts. Copyright © 2013 John Wiley & Sons, Ltd.