Forecasting with a DSGE Model of the term Structure of Interest Rates: The Role of the Feedback

Paolo Zagaglia

No 2009:14, Research Papers in Economics from Stockholm University, Department of Economics

Abstract: This paper studies the forecasting performance of the general equilibrium model of bond yields of Marzo, Söderström and Zagaglia (2008), where long-term interest rates are an integral part of the monetary transmission mechanism. The model is estimated with Bayesian methods on Euro area data. I investigate the out-of-sample predictive performance across different model specifications, including that of De Graeve, Emiris and Wouters (2009). The accuracy of point forecasts is evaluated through both univariate and multivariate accuracy measures. I show that taking into account the impact of the term structure of interest rates on the macroeconomy generates superior out-of-sample forecasts for both real variables, such as output, and inflation, and for bond yields.

Keywords: Monetary policy; yield curve; general equilibrium; bayesian estimation (search for similar items in EconPapers)
JEL-codes: E43 E44 E52 (search for similar items in EconPapers)
Pages: 43 pages
Date: 2009-05-20
New Economics Papers: this item is included in nep-cba, nep-dge, nep-for, nep-mac, nep-mon and nep-ore
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:hhs:sunrpe:2009_0014

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