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Forecasting using DSGE models with financial frictions

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  • Kolasa, Marcin
  • Rubaszek, Michał
Abstract
This paper compares the quality of forecasts from DSGE models with and without financial frictions. We find that accounting for financial market imperfections does not result in a uniform improvement in the accuracy of point forecasts during non-crisis times, while the average quality of density forecast actually deteriorates. In contrast, adding frictions in the housing market proves very helpful during times of financial turmoil, outperforming both the frictionless benchmark and the alternative that incorporates financial frictions in the corporate sector. Moreover, we detect complementarities among the analyzed setups that can be exploited in the forecasting process.

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  • Kolasa, Marcin & Rubaszek, Michał, 2015. "Forecasting using DSGE models with financial frictions," International Journal of Forecasting, Elsevier, vol. 31(1), pages 1-19.
    • Handle: RePEc:eee:intfor:v:31:y:2015:i:1:p:1-19
    DOI: 10.1016/j.ijforecast.2014.05.001
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    More about this item

    Keywords

    Forecasting; DSGE models; Financial frictions; Housing market;
    All these keywords.

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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