Citation

Discussion Paper Details

Please find the details for DP8158 in an easy to copy and paste format below:

Full Details   |   Bibliographic Reference

Full Details

Title: How Useful Are Estimated DSGE Model Forecasts for Central Bankers?

Author(s): Rochelle M Edge and Refet S. Gürkaynak

Publication Date: December 2010

Keyword(s): DSGE model forecast, forecast comparison and Great Moderation

Programme Area(s): International Macroeconomics

Abstract: DSGE models are a prominent tool for forecasting at central banks and the competitive forecasting performance of these models relative to alternatives--including official forecasts--has been documented. When evaluating DSGE models on an absolute basis, however, we find that the benchmark estimated medium scale DSGE model forecasts inflation and GDP growth very poorly, although statistical and judgmental forecasts forecast as poorly. Our finding is the DSGE model analogue of the literature documenting the recent poor performance of macroeconomic forecasts relative to simple naive forecasts since the onset of the Great Moderation. While this finding is broadly consistent with the DSGE model we employ--ie, the model itself implies that under strong monetary policy especially inflation deviations should be unpredictable--a 'wrong' model may also have the same implication. We therefore argue that forecasting ability during the Great Moderation is not a good metric to judge models.

For full details and related downloads, please visit: https://cepr.org/active/publications/discussion_papers/dp.php?dpno=8158

Bibliographic Reference

Edge, R and Gürkaynak, R. 2010. 'How Useful Are Estimated DSGE Model Forecasts for Central Bankers?'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=8158