Expectation formation, financial frictions, and forecasting performance of dynamic stochastic general equilibrium models / Oliver Holtemöller, Christoph Schult
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Expectation formation, financial frictions, and forecasting performance of dynamic stochastic general equilibrium models
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1030501904
URN
urn:nbn:de:gbv:3:2-96560
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Publication history
Halle (Saale) : Halle Institute for Economic Research (IWH) - Member of the Leibniz Association, [10. September 2018]
Content
1 Online-Ressource (III, 32 Seiten, 1,76 MB) : Diagramme
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eng
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Abstract
business cycles, economic forecasting, expectation formation, financial frictions, macroeconomic modelling
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
IWH-Diskussionspapiere ; 2018, no. 15 (September 2018) ppn:837399270