Nov 16, 2018 | 16:00—17:00
New Keynesian Dynamic Stochastic General Equilibrium (NK-DSGE) models with numerous real and nominal frictions have become the standard theory-based model for economic forecasting. To explain the origins of these models in general equilibrium theory, this talk will give an overview of the theory and assumptions behind NK-DSGE models. Secondly, it will explain how these models are taken to the data using Bayesian estimation techniques, and present results of a forecast evaluation exercise with a two-country NK-DSGE model for Austria and the Euro Area. Lastly, the lecture reflects on the continued use and apparent success of NK-DSGE models in economic forecasting, despite widespread critique of their underlying theory and the way Bayesian estimation is conducted in a DSGE context.