Minford, Anthony Patrick Leslie  ORCID: https://orcid.org/0000-0003-2499-935X, Xu, Yongdeng ORCID: https://orcid.org/0000-0001-8275-1585 and Zhou, Peng ORCID: https://orcid.org/0000-0002-4310-9474
2015.
How good are out of sample forecasting tests on DSGE models?
Italian Economic Journal
1
(3)
, pp. 333-351.
10.1007/s40797-015-0020-9
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Abstract
Out-of-sample forecasting tests of DSGE models against time-series benchmarks such as an unrestricted VAR are increasingly used to check (a) the specification and (b) the forecasting capacity of these models. We carry out a Monte Carlo experiment on a widely-used DSGE model to investigate the power of these tests. We find that in specification testing they have weak power relative to an in-sample indirect inference test; this implies that a DSGE model may be badly mis-specified and still improve forecasts from an unrestricted VAR. In testing forecasting capacity they also have quite weak power, particularly on the lefthand tail. By contrast a model that passes an indirect inference test of specification will almost definitely also improve on VAR forecasts.
| Item Type: | Article |
|---|---|
| Date Type: | Publication |
| Status: | Published |
| Schools: | Schools > Business (Including Economics) |
| Subjects: | H Social Sciences > H Social Sciences (General) |
| Publisher: | Springer |
| ISSN: | 2199-322X |
| Date of First Compliant Deposit: | 30 March 2016 |
| Date of Acceptance: | 9 July 2015 |
| Last Modified: | 16 Nov 2024 13:15 |
| URI: | https://orca.cardiff.ac.uk/id/eprint/75348 |
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