2005), ‘Forecasting Performance of an Open Economy Dynamic Stochastic General Equilibrium Model’, Sveriges Riksbank Working Paper No 190

Abstract. This paper analyzes the forecasting performance of an open economy DSGE model, estimated with Bayesian methods, for the Euro area during 1994Q1 2002Q4. We compare the DSGE model and a few variants of this model to various reduced form forecasting models such as several vector autoregressions (VAR), estimated both by maximum likelihood and two di¤erent Bayesian approaches, and traditional benchmark models, e.g. the random walk. The accuracy of the point forecasts are assessed in a traditional out-of-sample rolling event evaluation using several univariate and multivariate measures. Forecast intervals are evaluated in di¤erent ways and the log predictive score is used to summarize the precision in the joint forecast distribution as a whole. We also discuss the role of Bayesian model probabilities and other frequently used low-dimensional summaries, e.g. the log determinant statistic, as measures of overall forecasting performance