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https://doi.org/10.12759/hsr.44.2019.2.313-339

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Expectation Formation, Financial Frictions, and Forecasting Performance of Dynamic Stochastic General Equilibrium Models

Erwartungswertbildung, Finanzmarktfriktionen, und die Vorhersagegenauigkeit von dynamischen stochastischen Gleichgewichtsmodellen
[journal article]

Holtemöller, Oliver
Schult, Christoph

Abstract

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... view more

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.... view less

Keywords
stochastics; economic model; predictive model; macroeconomics; economic policy; economic development (on national level); forecast procedure; financial crisis; estimation

Classification
Economic Policy

Free Keywords
Business cycles; economic forecasting; expectation formation; financial frictions; macroeconomic modelling

Document language
English

Publication Year
2019

Page/Pages
p. 313-339

Journal
Historical Social Research, 44 (2019) 2

Issue topic
Governing by Numbers - Key Indicators and the Politics of Expectations

ISSN
0172-6404

Status
Published Version; peer reviewed

Licence
Creative Commons - Attribution 4.0


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© 2007 - 2025 Social Science Open Access Repository (SSOAR).
Based on DSpace, Copyright (c) 2002-2022, DuraSpace. All rights reserved.