On the Fit and Forecasting Performance of New Keynesian Models
By Marco del Negro, Frank Schorfheide, Frank Smets, Raf Wouters. Social Science Research Network, 2005
315 citations recorded by the source corpus.
The paper provides new tools for the evaluation of DSGE models and applies them to a large-scale New Keynesian dynamic stochastic general equilibrium (DSGE) model with price and wage stickiness and capital accumulation. Specifically, we approximate the DSGE model by a vector autoregression (VAR) and then systematically relax the implied cross-equation restrictions. Let --denote the extent to which the restrictions are being relaxed. We document how the in- and out-of-sample fit of the resulting specification (DSGE-VAR) changes as a function of --. Furthermore, we learn about the precise nature of the misspecification by comparing the DSGE model’s impulse responses to structural shocks with those of the best-fitting DSGE-VAR. We find that the degree of misspecification in large-scale DSGE models is no longer so large as to prevent their use in day-to-day policy analysis, yet it is not small enough that it cannot be ignored.
Subfields: Economics and Econometrics
View Paper: https://www.semanticscholar.org/paper/7297ffe543c9335e7d9b472cb41240da4519262f
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In Economics and Econometrics
- Alejandro Justiniano
- Giorgio E. Primiceri
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Citations in the corpus
- Bayesian Estimation of an Open Economy DSGE Model with Incomplete Pass-Through (2007, methodology): “However, Del Negro et al. (2004) show that a rule using the trend output gap is preferred over a rule with the model consistent output gap, when estimating a closed economy DSGE model on US data.”
- The Price Puzzle Revisited: Can the Cost Channel Explain a Rise in Inflation after a Monetary Policy Shock? (2009, methodology): “The remaining parameters are calibrated according to values typically found in related work (see for example Smets and Wouters, 2003, Del Negro et al. 2005, and Leith and Malley, 2005, for estimations of DSGE models of the euro area).”