Handbook of Economic Forecasting

Chapter 2

DSGE Model-Based Forecasting

Marco Del Negro* and Frank Schorfheide^†,     ^*Research Department, Federal Reserve Bank of New York, 33 Liberty Street, New York, NY 10045, USA, ^†Department of Economics, 3718 Locust Walk, University of Pennsylvania, Philadelphia, PA 19104-6297, USA, ^*E-mail: [e-mail], ^†E-mail: [e-mail]

Abstract

Dynamic stochastic general equilibrium (DSGE) models use modern macroeconomic theory to explain and predict comovements of aggregate time series over the business cycle and to perform policy analysis. We explain how to use DSGE models for all three purposes – forecasting, story-telling, and policy experiments – and review their forecasting record. We also provide our own real-time assessment ...