Expectation formation, financial frictions, and forecasting performance of dynamic stochastic general equilibrium models

Arbeitspapier

In this paper, we document the forecasting performance of estimated basic dynamic stochastic general equilibrium (DSGE) models and compare this to extended versions which consider alternative expectation formation assumptions and financial frictions. We also show how standard model features, such as price and wage rigidities, contribute to forecasting performance. It turns out that neither alternative expectation formation behaviour nor financial frictions can systematically increase the forecasting performance of basic DSGE models. Financial frictions improve forecasts only during periods of financial crises. However, traditional price and wage rigidities systematically help to increase the forecasting performance.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: IWH Discussion Papers ; No. 15/2018

Classification and Topics

• Classification: Wirtschaft ; Multiple or Simultaneous Equation Models: Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models ; Forecasting Models; Simulation Methods ; Prices, Business Fluctuations, and Cycles: Forecasting and Simulation: Models and Applications
• Subject: business cycles ; economic forecasting ; expectation formation ; financial frictions ; macroeconomic modelling

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Holtemöller, Oliver ; Schult, Christoph
• Event: Veröffentlichung
• (who): Leibniz-Institut für Wirtschaftsforschung Halle (IWH)
• (where): Halle (Saale)
• (when): 2018

Further information

• Handle: http://hdl.handle.net/10419/182001
• URN: urn:nbn:de:gbv:3:2-96560
• Last update: 10.03.2025, 11:42 AM CET