Expectation Formation, Financial Frictions, and Forecasting Performance of Dynamic Stochastic General Equilibrium Models

Version
1
Resource Type
Text : Journal article
Creator
  • Holtemöller, Oliver
  • Schult, Christoph
Collective Title
  • Historical Social Research / Historische Sozialforschung
    Vol. 44, No. 2 (2019)
Publication Date
2019-03
Embargo End Date
2019-09-13
Publication Place
Cologne
Contributor
  • GESIS - Leibniz-Institut für Sozialwissenschaften (Editor)
Publisher
  • GESIS - Leibniz-Institut für Sozialwissenschaften
Language
English
Free Keywords
Quantification; key indicators; Business cycles; economic forecasting; expectation formation; financial frictions; macroeconomic modelling
Description
  • Abstract

    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.
  • Series Information

    Historical Social Research / Historische Sozialforschung Vol. 44, No. 2 (2019): Special Issue: Governing by Numbers - Key Indicators and the Politics of Expectations.

    Starting Point and Frequency: Year: 1979, Issues per volume: 4, Volumes per year: 1

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Rights
CC BY 4.0
Relations
  • Is part of
    URL: https://www.gesis.org/en/hsr/full-text-archive/2019/442-governing-by-numbers
  • Is part of
    ISSN: 0172-6404
  • Is identical to
    URL: http://eds.b.ebscohost.com/eds/detail/detail?vid=27&sid=7010ea0d-cdd7-427f-bf94-fffeb8e807ba%40sessionmgr101&bdata=Jmxhbmc9ZGUmc2l0ZT1lZHMtbGl2ZQ%3d%3d#AN=edsgso.61927&db=edsgso

Update Metadata: 2020-02-12 | Issue Number: 5 | Registration Date: 2019-03-14