Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/182001
Authors: 
Holtemöller, Oliver
Schult, Christoph
Year of Publication: 
2018
Series/Report no.: 
IWH Discussion Papers 15/2018
Abstract: 
In this paper, we document the forecasting performance of estimated basic dynamic stochastic general equilibrium (DSGE) models and compare this to extended versions which consider alternative expectation formation assumptions and financial frictions. We also show how standard model features, such as price and wage rigidities, contribute to forecasting performance. It turns out that neither alternative expectation formation behaviour nor financial frictions can systematically increase the forecasting performance of basic DSGE models. Financial frictions improve forecasts only during periods of financial crises. However, traditional price and wage rigidities systematically help to increase the forecasting performance.
Subjects: 
business cycles
economic forecasting
expectation formation
financial frictions
macroeconomic modelling
JEL: 
C32
C53
E37
Document Type: 
Working Paper

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