Ruhr Economic Papers
Ruhr Economic Papers #301
The Forecasting Performance of an Estimated Medium Run Model
by Tobias Kitlinski and Torsten Schmidt
RWI, 12/2011, 23 S./p., 8 Euro, ISBN 978-3-86788-346-7download
In recent times DSGE models came more and more into the focus of forecasters and showed promising forecast performances for the short term. We contribute to the existing literature by analyzing the forecast power of a DSGE model including endogenous growth for the medium run. Instead of only calibrating the model we apply a mixture of calibrating and estimating using Bayesian estimation methods. As forecasting benchmarks we take the Smets-Wouters model (2007) and a VAR model. The evaluation of the forecast errors shows that the Medium-Term model outperforms the Smets-Wouters model with respect to some key macroeconomic variables in the medium run. Compared to the VAR model the Medium-Term model forecast performance is competitive. These results show that the forecast ability of DSGE models is also valid for the medium term.
JEL-Classification: C32, C52, E32, E37
Keywords: Bayesian analysis; DSGE model; medium run; forecasting