Cardiff University | Prifysgol Caerdydd ORCA
Online Research @ Cardiff 
WelshClear Cookie - decide language by browser settings

How useful are DSGE macroeconomic models for forecasting?

Wickens, Michael ORCID: 2014. How useful are DSGE macroeconomic models for forecasting? Open Economies Review 25 (1) , pp. 171-193. 10.1007/s11079-013-9304-6

Full text not available from this repository.


A review of the literature shows that forecasts from DSGE models are not more accurate than either times series models or official forecasts, but neither are they any worse. Further, all three types of forecast failed to predict the recession that started in 2007 and continued to forecast poorly even after the recession was known to have begun. The aim of this paper is to investigate why these results occur by examining the structure of the solution of DSGE models and compare this with pure time series models. The main factor seems to be the dynamic structure of DSGE models. Their backward-looking dynamics gives them a similar forecasting structure to time series models and their forward-looking dynamics, which consists of expected values of future exogenous variables, is difficult to forecast accurately. This suggests that DSGE models should not be tested through their forecasting ability.

Item Type: Article
Date Type: Publication
Status: Published
Schools: Business (Including Economics)
Subjects: H Social Sciences > HB Economic Theory
Uncontrolled Keywords: DSGE models; Forecasting; VAR models
Publisher: Springer
ISSN: 0923-7992
Last Modified: 25 Oct 2022 09:20

Citation Data

Cited 15 times in Scopus. View in Scopus. Powered By Scopus® Data

Actions (repository staff only)

Edit Item Edit Item