This article investigates the forecasting performance of a new small-scale dynamic stochastic general equilibrium (DSGE) model. To this end, this article first conducts a Monte Carlo study for the evaluation of the new model against another DSGE model, a standard vector autoregression (VAR), and a Bayesian VAR, using root mean square error and directional accuracy measures. An empirical application to UK quarterly data of output gap, inflation, and interest rates over the period 1986–2019 is also carried out for point and density forecasts. The empirical findings unveil a better performance of the new model for directional accuracy than for root mean square error, while density forecasts indicate no statistical differences among the new model and the VAR models.
On the forecasting performance of small-scale DGSE models: A Monte Carlo evaluation and an application to UK / Angelini, Giovanni; Costantini, Mauro. - In: JOURNAL OF THE OPERATIONAL RESEARCH SOCIETY. - ISSN 0160-5682. - (2024).
On the forecasting performance of small-scale DGSE models: A Monte Carlo evaluation and an application to UK
Mauro CostantiniSecondo
2024
Abstract
This article investigates the forecasting performance of a new small-scale dynamic stochastic general equilibrium (DSGE) model. To this end, this article first conducts a Monte Carlo study for the evaluation of the new model against another DSGE model, a standard vector autoregression (VAR), and a Bayesian VAR, using root mean square error and directional accuracy measures. An empirical application to UK quarterly data of output gap, inflation, and interest rates over the period 1986–2019 is also carried out for point and density forecasts. The empirical findings unveil a better performance of the new model for directional accuracy than for root mean square error, while density forecasts indicate no statistical differences among the new model and the VAR models.File | Dimensione | Formato | |
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