How useful are estimated DSGE model forecasts for central bankers?

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dc.citation.epage244en_US
dc.citation.issueNumber2en_US
dc.citation.spage209en_US
dc.citation.volumeNumber41en_US
dc.contributor.authorEdge, R. M.en_US
dc.contributor.authorGürkaynak, R. S.en_US
dc.date.accessioned2019-02-10T08:39:36Z
dc.date.available2019-02-10T08:39:36Z
dc.date.issued2010en_US
dc.departmentDepartment of Economicsen_US
dc.description.abstractDynamic stochastic general equilibrium (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 mediumscale DSGE model forecasts inflation and GDP growth very poorly, although statistical and judgmental forecasts do equally 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. Although this finding is broadly consistent with the DSGE model we employ - the model itself implies that especially under strong monetary policy, 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 by which to judge models.en_US
dc.identifier.doi10.1353/eca.2010.0015en_US
dc.identifier.eissn1533-4465
dc.identifier.issn0007-2303
dc.identifier.urihttp://hdl.handle.net/11693/49177
dc.language.isoEnglishen_US
dc.publisherThe Brookings Institution Pressen_US
dc.relation.isversionofhttps://doi.org/10.1353/eca.2010.0015en_US
dc.source.titleBrookings Papers on Economic Activityen_US
dc.subjectDSGE model forecasten_US
dc.subjectForecast comparisonen_US
dc.subjectGreat moderationen_US
dc.titleHow useful are estimated DSGE model forecasts for central bankers?en_US
dc.typeArticleen_US

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