Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/209939
Authors: 
Bache, Ida Wolden
Jore, Anne Sofie
Mitchell, James
Vahey, Shaun P.
Year of Publication: 
2009
Series/Report no.: 
Working Paper No. 2009/23
Abstract: 
A popular macroeconomic forecasting strategy takes combinations across many models to hedge against instabilities of unknown timing; see (among others) Stock and Watson (2004), Clark and McCracken (2010), and Jore et al. (2010). Existing studies of this forecasting strategy exclude Dynamic Stochastic General Equilibrium (DSGE) models, despite the widespread use of these models by monetary policymakers. In this paper, we combine inflation forecast densities utilizing an ensemble system comprising many Vector Autoregressions (VARs), and a policymaking DSGE model. The DSGE receives substantial weight (for short horizons) provided the VAR components exclude structural breaks. In this case, the inflation forecast densities exhibit calibration failure. Allowing for structural breaks in the VARs reduces the weight on the DSGE considerably, and produces well-calibrated forecast densities for inflation.
Subjects: 
VAR models
DSGE models
ensemble modelling
forecast densities
forecast evaluation
JEL: 
C32
C53
E37
Persistent Identifier of the first edition: 
ISBN: 
978-82-7553-529-8
Creative Commons License: 
https://creativecommons.org/licenses/by-nc-nd/4.0/deed.no
Document Type: 
Working Paper
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