Report

Exploiting the monthly data flow in structural forecasting

Abstract: This paper develops a framework that allows us to combine the tools provided by structural models for economic interpretation and policy analysis with those of reduced-form models designed for nowcasting. We show how to map a quarterly dynamic stochastic general equilibrium (DSGE) model into a higher frequency (monthly) version that maintains the same economic restrictions. Moreover, we show how to augment the monthly DSGE with auxiliary data that can enhance the analysis and the predictive accuracy in now-casting and forecasting. Our empirical results show that both the monthly version of the DSGE and the auxiliary variables offer help in real time for identifying the drivers of the dynamics of the economy.

Keywords: mixed-frequency data; temporal aggregation; large datasets; DSGE models; forecasting;

JEL Classification: E30; C33; C53;

Bibliographic Information

Provider: Federal Reserve Bank of New York

Part of Series: Staff Reports

Publication Date: 2015-12-01

Number: 751

Pages: 45 pages