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Home > Research > Staff Working Paper No. 567: A new approach to multi-step forecasting using dynamic stochastic general equilibrium models - George Kapetanios, Simon Price and Konstantinos Theodoridis
 

Staff Working Paper No. 567: A new approach to multi-step forecasting using dynamic stochastic general equilibrium models - George Kapetanios, Simon Price and Konstantinos Theodoridis

20 November 2015

Staff Working Paper No. 567: A new approach to multi-step forecasting using dynamic stochastic general equilibrium models
George Kapetanios, Simon Price and Konstantinos Theodoridis


DSGE models are of interest because they offer structural interpretations, but are also increasingly used for forecasting. Estimation often proceeds by methods which involve building the likelihood by one-step ahead (h=1) prediction errors. However in principle this can be done using different horizons where h>1. Using the well-known model of Smets and Wouters (2007), for h=1 classical ML parameter estimates are similar to those originally reported. As h extends some estimated parameters change, but not to an economically significant degree. Forecast performance is often improved, in several cases significantly.

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