Evaluating DSGE Model Forecasts of Comovements

43 Pages Posted: 2 Jun 2017

See all articles by Edward Herbst

Edward Herbst

Board of Governors of the Federal Reserve System

Frank Schorfheide

University of Pennsylvania - Department of Economics; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER); University of Pennsylvania - The Penn Institute for Economic Research (PIER)

Multiple version iconThere are 4 versions of this paper

Date Written: 2012

Abstract

This paper develops and applies tools to assess multivariate aspects of Bayesian Dynamic Stochastic General Equilibrium (DSGE) model forecasts and their ability to predict comovements among key macroeconomic variables. We construct posterior predictive checks to evaluate conditional and unconditional density forecasts, in addition to checks for root-mean-squared errors and event probabilities associated with these forecasts. The checks are implemented on a three-equation DSGE model as well as the Smets and Wouters (2007) model using real-time data. We find that the additional features incorporated into the Smets-Wouters model do not lead to a uniform improvement in the quality of density forecasts and prediction of comovements of output, inflation, and interest rates.

Suggested Citation

Herbst, Edward and Schorfheide, Frank, Evaluating DSGE Model Forecasts of Comovements (2012). FEDS Working Paper No. 2012-11, Available at SSRN: https://ssrn.com/abstract=2976622

Edward Herbst (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
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Frank Schorfheide

University of Pennsylvania - Department of Economics ( email )

Ronald O. Perelman Center for Political Science
133 South 36th Street
Philadelphia, PA 19104-6297
United States

HOME PAGE: http://www.econ.upenn.edu/~schorf

Centre for Economic Policy Research (CEPR)

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United Kingdom

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

University of Pennsylvania - The Penn Institute for Economic Research (PIER) ( email )

Philadelphia, PA
United States

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