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Monetary Policy Forecasting in a DSGE Model with Data that is Uncertain, Unbalanced and About the Future

Author

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  • Andrés González Gómez
  • Lavan Mahadeva
  • Diego Rodríguez
  • Luis Eduardo Rojas
Abstract
If theory-consistent models can ever hope to forecast well and to be useful for policy, they have to relate to data which though rich in information is uncertain, unbalanced and sometimes forecasts from external sources about the future path of other variables. One example from many is financial market data, which can help but only after smoothing out irrelevant short-term volatility. In this paper we propose combining different types of useful but awkward data set with a linearised forward-looking DSGE model through a Kalman Filter fixed-interval smoother to improve the utility of these models as policy tools. We apply this scheme to a model for Colombia.

Suggested Citation

  • Andrés González Gómez & Lavan Mahadeva & Diego Rodríguez & Luis Eduardo Rojas, 2009. "Monetary Policy Forecasting in a DSGE Model with Data that is Uncertain, Unbalanced and About the Future," Borradores de Economia 559, Banco de la Republica de Colombia.
    • Handle: RePEc:bdr:borrec:559
    DOI: 10.32468/be.559
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    Cited by:

    1. Andrés González & Lavan Mahadeva & Juan D. Prada & Diego Rodríguez, 2011. "Policy Analysis Tool Applied to Colombian Needs: Patacon Model Description," Revista ESPE - Ensayos Sobre Política Económica, Banco de la República, vol. 29(66), pages 222-245, December.
    2. Luis E. Rojas, 2011. "Professional Forecasters: How to Understand and Exploit Them Through a DSGE Model," Borradores de Economia 664, Banco de la Republica de Colombia.
    3. Ramiro Rodríguez Revilla, 2011. "Modelos de equilibrio general dinámicos y estocásticos para Colombia 1995-2011," Revista Ecos de Economía, Universidad EAFIT, December.

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    More about this item

    Keywords

    Monetary Policy; DSGE; Forecast; Kalman Filter;
    All these keywords.

    JEL classification:

    • F47 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Forecasting and Simulation: Models and Applications
    • E01 - Macroeconomics and Monetary Economics - - General - - - Measurement and Data on National Income and Product Accounts and Wealth; Environmental Accounts
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis

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