Assessing the Forecasting Performance of a Small-Scale Open Economy DSGE Model
Date Issued
2010
Date
2010
Author(s)
Mei, Wei-Ting
Abstract
This paper aims to assess the forecasting performance of a small-scale open economy DSGE model for Canada. We conduct Diebold-Mariano test to compare the out-of-sample forecasts arising from such model with those from a simple VAR model. Our results show that the VAR model gives better forecasts than the DSGE model for all variables but the nominal exchange rate. However, the superiority of the VAR model diminishes for most variables as the forecasting horizon increases. These results indicate that a DSGE model with small-scale specifications might fail to beat a VAR model for being an useful forecasting tool.
Subjects
Forecasting
Small-scale
Open economy DSGE model
Vector autoregressive models
Canada
Out-of-sample forecasts
Diebold-Mariano test
Type
thesis
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