A comparison of forecast performance between Federal Reserve staff forecasts, simple reduced-form models, and a DSGE model

Rochelle Edge (), Michael Kiley and Jean-Philippe Laforte

No 2009-10, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: This paper considers the \"real-time\" forecast performance of the Federal Reserve staff, time-series models, and an estimated dynamic stochastic general equilibrium (DSGE) model--the Federal Reserve Board's new Estimated, Dynamic, Optimization-based (Edo) model. We evaluate forecast performance using out-of-sample predictions from 1996 through 2005, thereby examining over 70 forecasts presented to the Federal Open Market Committee (FOMC). Our analysis builds on previous real-time forecasting exercises along two dimensions. First, we consider time-series models, a structural DSGE model that has been employed to answer policy questions quite different from forecasting, and the forecasts produced by the staff at the Federal Reserve Board. In addition, we examine forecasting performance of our DSGE model at a relatively detailed level by separately considering the forecasts for various components of consumer expenditures and private investment. The results provide significant support to the notion that richly specified DSGE models belong in the forecasting toolbox of a central bank.

Keywords: Economic forecasting; time series analysis; Macroeconomics (search for similar items in EconPapers)
Date: 2009
New Economics Papers: this item is included in nep-cba, nep-dge, nep-for and nep-mac
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Citations: View citations in EconPapers (35)

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Journal Article: A comparison of forecast performance between Federal Reserve staff forecasts, simple reduced-form models, and a DSGE model (2010)
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