Journal Article

Evaluating point and density forecasts of DSGE models

Author

  • Maik Wolters
Publication Date

This paper investigates the accuracy of forecasts from four DSGE models for inflation, output

growth and the federal funds rate using a real-time dataset synchronized with the Fed’s Greenbook

projections. Conditioning the model forecasts on the Greenbook nowcasts leads to forecasts that

are as accurate as the Greenbook projections for output growth and the federal funds rate. Only

for inflation the model forecasts are dominated by the Greenbook projections. A comparison with

forecasts from Bayesian VARs shows that the economic structure of the DSGE models which is

useful for the interpretation of forecasts does not lower the accuracy of forecasts. Combining

forecasts of several DSGE models increases precision in comparison to individual model forecasts.

Comparing density forecasts with the actual distribution of observations shows that DSGE

models overestimate uncertainty around point forecasts.

Info

JEL Classification
C53, E31, E32, E37

Key Words

  • Bayesian VAR
  • density forecasts
  • DSGE models
  • DSGE-Modell
  • forecast combination
  • forecasting
  • Greenbook
  • Model Uncertainty
  • Real-time data