On the predictability of time-varying VAR and DSGE models

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Title: On the predictability of time-varying VAR and DSGE models
Authors: Bekiros, Stelios D.
Paccagnini, Alessia
Permanent link: http://hdl.handle.net/10197/7326
Date: Aug-2013
Online since: 2015-12-18T15:27:19Z
Abstract: Over the last few years, there has been a growing interest in DSGE modelling for predicting macroeconomic fluctuations and conducting quantitative policy analysis. Hybrid DSGE models have become popular for dealing with some of the DSGE misspecifications as they are able to solve the trade-off between theoretical coherence and empirical fit. However, these models are still linear and they do not consider time variation for parameters. The time-varying properties in VAR or DSGE models capture the inherent nonlinearities and the adaptive underlying structure of the economy in a robust manner. In this article, we present a state-space time-varying parameter VAR model. Moreover, we focus on the DSGE–VAR that combines a microfounded DSGE model with the flexibility of a VAR framework. All the aforementioned models as well simple DSGEs and Bayesian VARs are used in a comparative investigation of their out-of-sample predictive performance regarding the US economy. The results indicate that while in general the classical VAR and BVARs provide with good forecasting results, in many cases the TVP–VAR and the DSGE–VAR outperform the other models.
Funding Details: European Commission - Seventh Framework Programme (FP7)
Type of material: Journal Article
Publisher: Springer
Journal: Empirical Economics
Volume: 45
Issue: 1
Start page: 635
End page: 664
Copyright (published version): 2012 Springer-Verlag
Keywords: Hybrid DSGETime-varying VARKalman filterBayesian VARForecasting
DOI: 10.1007/s00181-012-0623-z
Language: en
Status of Item: Not peer reviewed
Appears in Collections:Economics Research Collection

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