Forecasting and Policy Making

Wieland, Volker; Wolters, Maik H.

doi:10.1016/b978-0-444-53683-9.00005-0

“…As pointed 1 Taylor and Wieland [126] use the database to compare the responses to monetary policy shocks. Wieland and Wolters [132] study the forecasting behavior for a large set of models in the database. 2 Other prominent institutions that have adopted estimated DSGE model as their core policy tool include Bank of England (COMPASS, see [26]), Norges Bank (NEMO, see [24]), Sveriges Riksbank (RAMSES, see [10]), Federal Reserve Bank of New York [56], and the Federal Reserve Bank of Chicago [23].…”

Section: Common Features Of Central Bank Modelsmentioning

confidence: 99%

Challenges for Central Banks’ Macro Models

Lindé

¹

,

Smets

²

,

Wouters

³

2016

Handbook of Macroeconomics

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. The Working Paper series presents reports on matters in the sphere of activities of the Riksbank that are considered to be of interest to a wider public. Terms of use: Documents inThe papers are to be regarded as reports on ongoing studies and the authors will be pleased to receive comments.The opinions expressed in this article are the sole responsibility of the author(s) and should not be interpreted as reflecting the views of Sveriges Riksbank. Challenges for Central Banks'Macro Models AbstractIn this paper we discuss a number of challenges for structural macroeconomic models in the light of the Great Recession and its aftermath. It shows that a benchmark DSGE model that shares many features with models currently used by central banks and large international institutions has di¢ culty explaining both the depth and the slow recovery of the Great Recession. In order to better account for these observations, the paper analyses three extensions of the benchmark model. First, we estimate the model allowing explicitly for the zero lower bound constraint on nominal interest rates. Second, we introduce time-variation in the volatility of the exogenous disturbances to account for the non-Gaussian nature of some of the shocks. Third and …nally, we extend the model with a …nancial accelerator and allow for time-variation in the endogenous propagation of …nancial shocks. All three extensions require that we go beyond the linear Gaussian assumptions that are standard in most policy models. We conclude that these extensions go some way in accounting for features of the Great Recession and its aftermath, but they do not su¢ ce to address some of the major policy challenges associated with the use of non-standard monetary policy and macroprudential policies. JEL Classi…cation: E52, E58

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“…Moreover, policy rules estimated by Orphanides and Wieland (2008) and Wieland and Wolters (2011) show that FOMC forecasts have more explanatory power for actual interest rate decisions than observed outcomes. Thus, evaluating forecasts that are formulated by monetary policymakers is an important element in the analysis of monetary policy decisions.…”

Section: Introductionmentioning

confidence: 99%

Evaluating FOMC forecast ranges: an interval data approach

Fischer

¹

,

García-Bárzana

²

,

Tillmann

³

et al. 2013

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. out to be of sometimes crucial importance for longer-horizon forecasts. For 18-month-ahead forecasts the variation of members' projections contains information which is more relevant for explaining future inflation than information embodied in the midpoint. The midpoint also disqualifies as an unbiased forecast to be used on its own when considering longer-range forecast intervals for real GDP growth and the unemployment rate. Terms of use: Documents in

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“…According to Greenspan (1994, p. 241), "implicit in any monetary policy action or inaction is an expectation of how the future will unfold, that is, a forecast". Wieland and Wolters (2011) provide empirical evidence that Central Bank policies in the US and Europe are described by interest rate rules, where interest rates respond to forecasts of in ‡ation and economic activity, rather than outcomes. Not only economic policy relies on macroeconomic forecasts: the path of the policy may directly a¤ect the forecasts ("projections") of macroeconomic aggregates.…”

Section: Introductionmentioning

confidence: 99%

Exchange Rate Predictability

Rossi

¹

2013

Journal of Economic Literature

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The main goal of this article is to provide an answer to the question: "Does anything forecast exchange rates, and if so, which variables?". It is well known that exchange rate ‡uctuations are very di¢ cult to predict using economic models, and that a random walk forecasts exchange rates better than any economic model (the Meese and Rogo¤ puzzle). However, the recent literature has identi…ed a series of fundamentals/methodologies that claim to have resolved the puzzle. This article provides a critical review of the recent literature on exchange rate forecasting and illustrates the new methodologies and fundamentals that have been recently proposed in an upto-date, thorough empirical analysis. Overall, our analysis of the literature and the data suggests that the answer to the question: "Are exchange rates predictable?" is, "It depends" -on the choice of predictor, forecast horizon, sample period, model, and forecast evaluation method. Predictability is most apparent when one or more of the following hold: the predictors are Taylor rule or net foreign assets, the model is linear, and a small number of parameters are estimated. The toughest benchmark is the random walk without drift.

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Forecasting and Policy Making

Cited by 51 publications

References 117 publications

Challenges for Central Banks’ Macro Models

Challenges for Central Banks’ Macro Models

Evaluating FOMC forecast ranges: an interval data approach

Exchange Rate Predictability

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