NDLI: How Useful are DSGE Macroeconomic Models for Forecasting?

Content Provider	Springer Nature Link
Author	Wickens, Michael
Copyright Year	2014
Abstract	A review of the literature shows that forecasts from DSGE models are not more accurate than either times series models or official forecasts, but neither are they any worse. Further, all three types of forecast failed to predict the recession that started in 2007 and continued to forecast poorly even after the recession was known to have begun. The aim of this paper is to investigate why these results occur by examining the structure of the solution of DSGE models and compare this with pure time series models. The main factor seems to be the dynamic structure of DSGE models. Their backward-looking dynamics gives them a similar forecasting structure to time series models and their forward-looking dynamics, which consists of expected values of future exogenous variables, is difficult to forecast accurately. This suggests that DSGE models should not be tested through their forecasting ability.
Ending Page	193
Page Count	23
Starting Page	171
File Format	PDF
ISSN	09237992
e-ISSN	1573708X
Journal	Open Economies Review
Issue Number	1
Volume Number	25
Language	English
Publisher	Springer US
Publisher Date	2014-01-23
Publisher Place	Boston
Access Restriction	One Nation One Subscription (ONOS)
Subject Keyword	General Aggregative Models DSGE models Economic Policy Macroeconomics/Monetary Economics Development Economics Financial Economics Econometric Modeling International Economics VAR models Forecasting European Integration
Content Type	Text
Resource Type	Article
Subject	Economics and Econometrics

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1	Ministry of Education (GoI), Department of Higher Education	Sanctioning Authority	https://www.education.gov.in/ict-initiatives
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3	National Digital Library of India Office, Indian Institute of Technology Kharagpur	The administrative and infrastructural headquarters of the project	Dr. B. Sutradhar bsutra@ndl.gov.in
4	Project PI / Joint PI	Principal Investigator and Joint Principal Investigators of the project	Dr. B. Sutradhar bsutra@ndl.gov.in Prof. Saswat Chakrabarti will be added soon
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