Professional Forecasters and the Real-time Forecasting Performance of an Estimated New Keynesian Model for the Euro Area

30 Pages Posted: 12 Aug 2013

See all articles by Frank Smets

Frank Smets

European Central Bank (ECB); KU Leuven - Center for Economic Studies

Anders Warne

European Central Bank (ECB)

Rafael Wouters

National Bank of Belgium

Date Written: August 2013

Abstract

This paper analyses the real-time forecasting performance of the New Keynesian DSGE model of Galí, Smets, and Wouters (2012) estimated on euro area data. It investigates to what extent forecasts of inflation, GDP growth and unemployment by professional forecasters improve the forecasting performance. We consider two approaches for conditioning on such information. Under the "noise" approach, the mean professional forecasts are assumed to be noisy indicators of the rational expectations forecasts implied by the DSGE model. Under the "news" approach, it is assumed that the forecasts reveal the presence of expected future structural shocks in line with those estimated over the past. The forecasts of the DSGE model are compared with those from a Bayesian VAR model and a random walk.

Keywords: Bayesian methods, DSGE model, real-time database, Survey of Professional Forecasters, macroeconomic forecasting, estimated New Keynesian model, euro area

JEL Classification: E24, E31, E32

Suggested Citation

Smets, Frank and Warne, Anders and Wouters, Rafael, Professional Forecasters and the Real-time Forecasting Performance of an Estimated New Keynesian Model for the Euro Area (August 2013). ECB Working Paper No. 1571, Available at SSRN: https://ssrn.com/abstract=2302512

Frank Smets (Contact Author)

European Central Bank (ECB) ( email )

Kaiserstrasse 29
D-60311 Frankfurt am Main
Germany
+49 69 1344 6550 (Phone)
+49 69 1344 6575 (Fax)

KU Leuven - Center for Economic Studies ( email )

Naamsestraat 69
Leuven, B-3000
Belgium

Anders Warne

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Rafael Wouters

National Bank of Belgium ( email )

Brussels, B-1000
Belgium
+32 2 221 5441 (Phone)
+32 2 221 3162 (Fax)

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