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Federal Reserve Bank of Philadelphia
Working Papers
Evaluating DSGE model forecasts of comovements
Edward Herbst
Frank Schorfheide
Abstract

This paper develops and applies tools to assess multivariate aspects of Bayesian Dynamic Stochastic General Equilibrium (DSGE) model forecasts and their ability to predict comovements among key macroeconomic variables. The authors construct posterior predictive checks to evaluate the calibration of conditional and unconditional density forecasts, in addition to checks for root-mean-squared errors and event probabilities associated with these forecasts. The checks are implemented on a three-equation DSGE model as well as the Smets and Wouters (2007) model using real-time data. They find that the additional features incorporated into the Smets-Wouters model do not lead to a uniform improvement in the quality of density forecasts and prediction of comovements of output, inflation, and interest rates.


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Edward Herbst & Frank Schorfheide, Evaluating DSGE model forecasts of comovements, Federal Reserve Bank of Philadelphia, Working Papers 11-5, 2011.
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Keywords: Econometric models ; Forecasting
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