Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/82501
Authors: 
Adolfson, Malin
Andersson, Michael K.
Lindé, Jesper
Villani, Mattias
Vredin, Anders
Year of Publication: 
2005
Series/Report no.: 
Sveriges Riksbank Working Paper Series 188
Abstract: 
There are many indications that formal methods are not used to their full potential by central banks today. In this paper we demonstrate how BVAR and DSGE models can be used to shed light on questions that policy makers deal with in practice using data from Sweden. We compare the forecast performance of BVAR and DSGE models with the Riksbank's official, more subjective forecasts, both in terms of the actual forecasts and root mean square errors. We also discuss how to combine model- and judgment based forecasts, and show that the combined forecast performs well out-of-sample. In addition, we show the advantages of structural analysis and use the models for interpreting the recent development of the inflation rate using historical decompositions. Lastly, we discuss the monetary transmission mechanism in the formal models, using impulse response functions and conditional forecasts.
Subjects: 
Bayesian inference
Combined forecasts
DSGE models
Forecasting
Monetary policy
Subjective forecasting
Vector autoregressions
JEL: 
E37
E47
E52
Document Type: 
Working Paper

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