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Forecasting a Commodity-Exporting Small Open Developing Economy Using DSGE and DSGE-BVAR

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  • Erlan Konebayev

Abstract

In this paper, we assess the forecasting performance of three types of structural models – DSGE, BVAR with Minnesota priors, and DSGE-BVAR – in the context of a commodity-exporting small open developing economy using the data for Kazakhstan. We find that BVAR and DSGE-BVAR models generally produce point forecasts that are more accurate and less biased compared to those of DSGE in the short term, but that BVAR forecasts rapidly deteriorate in quality as the length of the forecast horizon increases. The density forecast analysis shows that when all variables are jointly considered, the models have similar prediction accuracy, and when financial sector variables are omitted, the BVAR and DSGE-BVAR models demonstrate superior performance in the short term.

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  • Erlan Konebayev, 2023. "Forecasting a Commodity-Exporting Small Open Developing Economy Using DSGE and DSGE-BVAR," International Economic Journal, Taylor & Francis Journals, vol. 37(1), pages 39-70, January.
    • Handle: RePEc:taf:intecj:v:37:y:2023:i:1:p:39-70
    DOI: 10.1080/10168737.2023.2170443
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    More about this item

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation: Models and Applications
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications

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