Expectation Formation, Financial Frictions, and Forecasting Performance of Dynamic Stochastic General Equilibrium Models
- Holtemöller, Oliver
- Schult, Christoph
Historical Social Research / Historische Sozialforschung
Vol. 44, No. 2 (2019)
- GESIS - Leibniz-Institut für Sozialwissenschaften (Editor)
- GESIS - Leibniz-Institut für Sozialwissenschaften
AbstractIn 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.
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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Update Metadata: 2020-02-12 | Issue Number: 5 | Registration Date: 2019-03-14