TY - JOUR
T1 - Model-based vs. professional forecasts
T2 - implications for models with nominal rigidities
AU - Valle e Azevedo, João
AU - Jalles, João Tovar
PY - 2017/1/1
Y1 - 2017/1/1
N2 - We compare model forecast error statistics with forecast error statistics of professional forecasts. We look at a standard sticky-prices–wages model, concluding that it delivers too strong a theoretical forecastability of the variables under scrutiny, at odds with the data (professional forecasts). We argue that the lack of compatibility between the model and professional forecasts results from trying to fit inflation (which is probably nonstationary) to a model that assumes inflation is stationary. A modified version of the model, one with a varying inflation target, delivers a better fit in terms of forecastability.
AB - We compare model forecast error statistics with forecast error statistics of professional forecasts. We look at a standard sticky-prices–wages model, concluding that it delivers too strong a theoretical forecastability of the variables under scrutiny, at odds with the data (professional forecasts). We argue that the lack of compatibility between the model and professional forecasts results from trying to fit inflation (which is probably nonstationary) to a model that assumes inflation is stationary. A modified version of the model, one with a varying inflation target, delivers a better fit in terms of forecastability.
KW - DSGE Models
KW - Nominal Rigidities
KW - Survey of Professional Forecasters
UR - http://www.scopus.com/inward/record.url?scp=84958768537&partnerID=8YFLogxK
U2 - 10.1017/S1365100515000425
DO - 10.1017/S1365100515000425
M3 - Article
AN - SCOPUS:84958768537
SN - 1365-1005
VL - 21
SP - 130
EP - 159
JO - Macroeconomic Dynamics
JF - Macroeconomic Dynamics
IS - 1
ER -