Putting the New Keynesian DSGE Model to the Real-Time Forecasting Test

Authors

  • MARCIN KOLASA,

    1. Marcin Kolasa is an Economic Advisor at the Economic Institute, National Bank of Poland and Assistant Professor in the Department of Applied and Theoretical Economics, Warsaw School of Economics (E-mail: marcin.kolasa@nbp.pl). Michał Rubaszek is an Economic Advisor at the Economic Institute, National Bank of Poland and an Assistant Professor at the Econometric Institute, Warsaw School of Economics (E-mail: michal.rubaszek@nbp.pl). Paweł Skrzypczyński is an Economic Expert at the Economic Institute, National Bank of Poland (E-mail: pawel.skrzypczynski@nbp.pl).
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  • MICHAŁ RUBASZEK,

    1. Marcin Kolasa is an Economic Advisor at the Economic Institute, National Bank of Poland and Assistant Professor in the Department of Applied and Theoretical Economics, Warsaw School of Economics (E-mail: marcin.kolasa@nbp.pl). Michał Rubaszek is an Economic Advisor at the Economic Institute, National Bank of Poland and an Assistant Professor at the Econometric Institute, Warsaw School of Economics (E-mail: michal.rubaszek@nbp.pl). Paweł Skrzypczyński is an Economic Expert at the Economic Institute, National Bank of Poland (E-mail: pawel.skrzypczynski@nbp.pl).
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  • PAWEŁ SKRZYPCZYŃSKI

    1. Marcin Kolasa is an Economic Advisor at the Economic Institute, National Bank of Poland and Assistant Professor in the Department of Applied and Theoretical Economics, Warsaw School of Economics (E-mail: marcin.kolasa@nbp.pl). Michał Rubaszek is an Economic Advisor at the Economic Institute, National Bank of Poland and an Assistant Professor at the Econometric Institute, Warsaw School of Economics (E-mail: michal.rubaszek@nbp.pl). Paweł Skrzypczyński is an Economic Expert at the Economic Institute, National Bank of Poland (E-mail: pawel.skrzypczynski@nbp.pl).
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  • The paper was presented at the conference “Publishing Central Bank Forecasts in Theory and Practice” held by the National Bank of Poland (Warsaw 2009), the 64th European Meeting of the Econometric Society (Barcelona 2009), Macroeconomic Forecasting Conference (Rome 2009), and the Annual Conference of the Money Macro and Finance Research Group (Limassol 2010). We are grateful to participants at these meetings, Michał Brzoza-Brzezina, Wojciech Charemza, Jesus Crespo-Cuaresma, Marco Del Negro, Andrzej Kocięcki, Frank Schorfheide, and Tara Sinclair for helpful comments.

Abstract

The paper compares the quality of real-time forecasts from a standard medium-scale New Keynesian dynamic stochastic general equilibrium (DSGE) model to those from the Survey of Professional Forecasters (SPF) and DSGE-VARs. It is shown that the DSGE model is relatively successful in forecasting the U.S. economy. This is especially true for forecasts conditional on SPF nowcasts, in which case the forecasting power of the DSGE turns out to be similar or better than that of the SPF for all the variables and horizons. An important weakness of the benchmark DSGE model is the poor absolute performance of its point forecasts and rather badly calibrated forecast densities.

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