Dealing with Misspecification in DSGE Models: A Survey

Paccagnini, Alessia

doi:10.2139/ssrn.3083615

Cited by 3 publications

(2 citation statements)

References 149 publications

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“…Dynamic Stochastic General Equilibrium (DSGE) models are the workhorse of modern macroeconomics in both academia and policy-making institutions (for details, see : Paccagnini, 2017;Christiano et al, 2018).…”

Section: Forecasting With Dsge Models 20mentioning

confidence: 99%

Forecasting: theory and practice

Petropoulos,

Apiletti,

Assimakopoulos

et al. 2020

Preprint

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Forecasting has always been in the forefront of decision making and planning. The uncertainty that surrounds the future is both exciting and challenging, with individuals and organisations seeking to minimise risks and maximise utilities. The lack of a free-lunch theorem implies the need for a diverse set of forecasting methods to tackle an array of applications. This unique article provides a non-systematic review of the theory and the practice of forecasting. We offer a wide range of theoretical, state-of-the-art models, methods, principles, and approaches to prepare, produce, organise, and evaluate forecasts. We then demonstrate how such theoretical concepts are applied in a variety of real-life contexts, including operations, economics, finance, energy, environment, and social good. We do not claim that this review is an exhaustive list of methods and applications. The list was compiled based on the expertise and interests of the authors. However, we wish that our encyclopedic presentation will offer a point of reference for the rich work that has been undertaken over the last decades, with some key insights for the future of the forecasting theory and practice.

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Section: Forecasting With Dsge Models 20mentioning

confidence: 99%

Forecasting: theory and practice

Petropoulos,

Apiletti,

Assimakopoulos

et al. 2020

Preprint

Self Cite

View full text Add to dashboard Cite

show abstract

“…This assumption implies that economic agents rely on not only past information but also future information to optimize their objectives. Additionally, the DSGE model has the advantage of combining the micro-foundation of both households’ and firms’ optimization problems with a large collection of both real and nominal rigidities (Paccagnini, 2011).…”

Section: Introductionmentioning

confidence: 99%

External Shocks and Their Transmission Channels in Nigeria: A Dynamic Stochastic General Equilibrium Approach

Yinusa

2022

Global Journal of Emerging Market Economies

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The study examines the sources of external shocks and investigates their transmission channels in Nigeria using the trade-weighted variables from the country’s five top trading partners. Based on the assumption of the small open economy model, the study adopts the New Keynesian Dynamic Stochastic General Equilibrium Model on quarterly data between 1981 and 2018 using the Bayesian estimation technique. Findings from the study reveal that external shocks have a temporary and short-lived effect on the Nigerian economy. In addition, the article shows that oil price, foreign output, and foreign inflation shock have positive impacts on output gap and inflation, while the impact of foreign interest rate shock on the output gap and inflation is negative and not significant. The study also reveals that external shocks collectively explain 86% and 39%of total fluctuations in the output gap and inflation, respectively. Lastly, the study finds that external shocks transmit to the Nigerian economy via different channels. The study, therefore, concludes that terms of trade and exchange rate channels are the dominant transmitters of external shocks in Nigeria. Based on the findings from the study, important policy implications are highlighted.

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Does the foreign sector help forecast domestic variables in DSGE models?

Kolasa

Rubaszek

2018

International Journal of Forecasting

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This paper evaluates the forecasting performance of several variants of a standard small open economy DSGE model relative to a closed economy benchmark using a long span of data for Australia, Canada and the United Kingdom. We find that accounting for a foreign sector in the model does not improve, and usually even deteriorates, the quality of point and density forecasts for key domestic variables. We show that this result can be at least partially attributed to an increase in forecast error due to a more sophisticated structure of the extended setup. This claim is based on a Monte Carlo experiment, in which an open economy model fails to consistently beat its closed economy benchmark even if it is the true data generating process.

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Dealing with Misspecification in DSGE Models: A Survey

Cited by 3 publications

References 149 publications

Forecasting: theory and practice

Forecasting: theory and practice

External Shocks and Their Transmission Channels in Nigeria: A Dynamic Stochastic General Equilibrium Approach

Does the foreign sector help forecast domestic variables in DSGE models?

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