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Empirical DSGE model evaluation with interest rate expectations measures and preferences over safe assets

Author

Listed:
  • Gregory de Walque

    (Economics and Research Department, National Bank of Belgium)

  • Thomas Lejeune

    (Economics and Research Department, National Bank of Belgium)

  • Ansgar Rannenberg

    (Economics and Research Department, National Bank of Belgium)

Abstract

We estimate a DSGE model with Preferences Over Safe Assets (POSA) on Euro Area macroeconomic data and interest rate expectations measures. The model with POSA has much better empirical fit than the otherwise identical model without, especially once interest rate expectations are added to the data set. Including measures interest rate expectations strongly improves the model forecast of GDP and its components, with the best forecast delivered by the POSA model. Finally, with POSA, ECB forward guidance increased GDP and inflation by 1.9 % and 0.1 percentage points by 2019Q4, respectively, much less than without POSA.

Suggested Citation

  • Gregory de Walque & Thomas Lejeune & Ansgar Rannenberg, 2023. "Empirical DSGE model evaluation with interest rate expectations measures and preferences over safe assets," Working Paper Research 433, National Bank of Belgium.
    • Handle: RePEc:nbb:reswpp:202302-433
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    File URL: https://www.nbb.be/en/articles/empirical-dsge-model-evaluation-interest-rate-expectations-measures-and-preferences-over
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    Cited by:

    1. Gregory de Walque & Thomas Lejeune & Ansgar Rannenberg & Magne Mogstad, 2023. "BEMGIE: Belgian Economy in a Macro General and International Equilibrium model," Working Paper Research 435, National Bank of Belgium.

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    More about this item

    Keywords

    DSGE estimation with interest rate expectations in the data set; forecasting; forward guidance; preferences over safe assets;
    All these keywords.

    JEL classification:

    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation: Models and Applications
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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