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Author(s) / Editor(s): 
  • Lavan Mahadeva
  • Juan Carlos Parra

Testing a DSGE model and its partner database

There is now an impetus to apply dynamic stochastic general equilibrium models to forecasting. But these models typically rely on purpose-built data, for example on tradable and nontradable sector outputs. How then do we know that the model will forecast well, in advance? We develop an early warning test of the database-model match and apply that to a Colombian model. Our test reveals where the combination should work (consumption) and where not (in investment). The test can be adapted to look at many likely sources of DSGE model failure.

La serie Borradores de Economía es una publicación de la Subgerencia de Estudios Económicos del Banco de la República. Los trabajos son de carácter provisional, las opiniones y posibles errores son responsabilidad exclusiva del autor y sus contenidos no comprometen al Banco de la República ni a su Junta Directiva.