Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/82429
Authors: 
Adolfson, Malin
Lindé, Jesper
Villani, Mattias
Year of Publication: 
2005
Series/Report no.: 
Sveriges Riksbank Working Paper Series 190
Abstract: 
This paper analyzes the forecasting performance of an open economy DSGE model, estimated with Bayesian methods, for the Euro area during 1994Q1-2002Q4. We compare the DSGE model and a few variants of this model to various reduced form forecasting models such as vector autoregressions (VAR) and vector error correction models (VECM), estimated both by maximum likelihood and two different Bayesian approaches, and traditional benchmark models, e.g. the random walk. The accuracy of point forecasts, interval forecasts and the predictive distribution as a whole are assessed in an out-of-sample rolling event evaluation using several univariate and multivariate measures. The results show that the open economy DSGE model compares well with more empirical models and thus that the tension between rigor and fit in older generations of DSGE models is no longer present. We also critically examine the role of Bayesian model probabilities and other frequently used low-dimensional summaries, e.g. the log determinant statistic, as measures of overall forecasting performance.
Subjects: 
Bayesian inference
Forecasting
Open economy DSGE model
Vector autoregressive models
JEL: 
C11
C32
E37
E47
Document Type: 
Working Paper

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