Comparison of prediction power of BVAR and DSGE models

KUMMEROVÁ, Petra and Miroslav HLOUŠEK. Comparison of prediction power of BVAR and DSGE models. In Talašová, J., Stoklasa, J., Talášek, T. Proceedings of 32nd International Conference Mathematical Methods in Economics. Olomouc: Palacký University. p. 536-541. ISBN 978-80-244-4209-9. 2014.

Basic information

• Original name: Comparison of prediction power of BVAR and DSGE models
• Authors: KUMMEROVÁ, Petra (203 Czech Republic, guarantor, belonging to the institution) and Miroslav HLOUŠEK (203 Czech Republic).
• Edition: Olomouc, Proceedings of 32nd International Conference Mathematical Methods in Economics, p. 536-541, 6 pp. 2014.
• Publisher: Palacký University

Other information

• Original language: English
• Type of outcome: Proceedings paper
• Field of Study: 50200 5.2 Economics and Business
• Country of publisher: Czech Republic
• Confidentiality degree: is not subject to a state or trade secret
• Publication form: storage medium (CD, DVD, flash disk)
• WWW: Conference proceedings
• RIV identification code: RIV/00216224:14560/14:00076456
• Organization unit: Faculty of Economics and Administration
• ISBN: 978-80-244-4209-9
• Keywords in English: steady state BVAR model; New Keynesian DSGE model; forecasting performance
• Tags: International impact, Reviewed

Abstract

This paper analyses macroeconomic development in the Czech Republic using structural steady state Bayesian VAR model, classical VAR model, and New Keynesian DSGE model for a small open economy. The steady state BVAR was developed by Villani (2009), DSGE model is borrowed from Justiniano and Preston (2004). Foreign sector in VAR models is implemented as block-exogenous. The models are estimated on data of Czech economy covering period 1996Q3 – 2013Q3. All models are compared on the basis of prediction performance measured by RMSE, impulse responses and variance decomposition. The results show that steady state BVAR has better prediction power for longer time horizons which is in accordance with its structure. On the other hand, DSGE model better predicts behaviour of variables for short periods, up to four quarters. According to RMSE computed for different horizons over the whole dataset, classical VAR model predictions were the least accurate in the majority of cases, DSGE model have the best predictive power for behaviour of foreign variables, and steady state BVAR overcomes the other models in prediction of interest rates in domestic economy.

Links

• MUNI/A/0775/2013, interní kód MU: Name: Analýza chování ekonomiky během hospodářského cyklu pomocí dynamických modelů

Investor: Masaryk University, Category A