Comparing the DSGE model with the factor model: an out-of-sample forecasting experiment

Please use this identifier to cite or link to this item: http://dspace.mediu.edu.my:8181/xmlui/handle/10419/19716

Title:	Comparing the DSGE model with the factor model: an out-of-sample forecasting experiment
Keywords:	C2 E37 C53 C3 ddc:330 DSGE models factor models forecasting forecastevaluation Wirtschaftsprognose Konjunkturprognose Prognoseverfahren Faktorenanalyse Allgemeines Gleichgewicht Dynamisches Modell Stochastischer Prozess Vergleich Theorie
Issue Date:	16-Oct-2013
Publisher:
Description:	In this paper, we put DSGE forecasts in competition with factor forecasts. We focus on these two models since they represent nicely the two opposing forecasting philosophies. The DSGE model on the one hand has a strong theoretical economic background; the factor model on the other hand is mainly data-driven. We show that by incooperating large information set using factor analysis can indeed improve the short horizon predictive ability, as claimed by manyresearchers. The micro founded DSGE model can provide reasonable forecasts for inflation, especially with growing forecast horizons. To a certain extent, our results are consistent with the prevailling view that simple time series models should be used in short-horizon forecasting and structural models should be used in long-horizon forecasting. Our paper compareds both state-of-the art data-driven and theory-based modelling in a rigorous manner.
URI:	http://koha.mediu.edu.my:8181/xmlui/handle/10419/19716
Other Identifiers:	http://hdl.handle.net/10419/19716 ppn:559685629 RePEc:zbw:bubdp1:7115
Appears in Collections:	EconStor

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