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A comparison of forecast performance between federal reserve staff forecasts, simple reduced‐form models, and a DSGE model
Author(s) -
Edge Rochelle M.,
Kiley Michael T.,
Laforte JeanPhilippe
Publication year - 2010
Publication title -
journal of applied econometrics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.878
H-Index - 99
eISSN - 1099-1255
pISSN - 0883-7252
DOI - 10.1002/jae.1175
Subject(s) - dynamic stochastic general equilibrium , toolbox , econometrics , sample (material) , economics , simple (philosophy) , monetary policy , computer science , macroeconomics , philosophy , chemistry , epistemology , chromatography , programming language
This paper considers the ‘real‐time’ forecast performance of the Federal Reserve staff, time‐series models, and an estimated dynamic stochastic general equilibrium (DSGE) model—the Federal Reserve Board's Estimated, Dynamic, Optimization‐based (Edo) model. We evaluate forecast performance using out‐of‐sample predictions from 1996 to 2004. We find that the Edo model can provide forecasts that are competitive with those of Federal Reserve staff. Taken together with the fact that the Edo model has also proved useful in answering a range of policy questions, this suggests a significant and broad role for richly specified DSGE models in the toolbox of central bank models. Copyright © 2010 John Wiley & Sons, Ltd.