Forecasting with a Bayesian DSGE model: an application to the euro area

In monetary policy strategies geared towards maintaining price stability conditional and unconditional forecasts of inflation and output play an important role. This paper illustrates how modern sticky-price dynamic stochastic general equilibrium models, estimated using Bayesian techniques, can become an additional useful tool in the forecasting kit of central banks. First, we show that the forecasting performance of such models compares well with a-theoretical vector autoregressions. Moreover, we illustrate how the posterior distribution of the model can be used to calculate the complete distribution of the forecast, as well as various inflation risk measures that have been proposed in the literature. Finally, the structural nature of the model allows computing forecasts conditional on a policy path. It also allows examining the structural sources of the forecast errors and their implications for monetary policy. Using those tools, we analyse macroeconomic developments in the euro area since the start of EMU. JEL Classification: E4, E5DSGE Models, euro area, forecasting, monetary policy

Forecasting with a Bayesian DSGE Model: an application to the euro area

In monetary policy strategies geared towards maintaining price stability conditional and unconditional forecasts of inflation and output play an important role. In this paper we illustrate how modern sticky-price dynamic stochastic general equilibrium (DSGE) models, estimated using Bayesian techniques, can become an additional useful tool in the forecasting kit of central banks. First, we show that the forecasting performance of such models compares well with a-theoretical vector autoregressions. Moreover, we illustrate how the posterior distribution of the model can be used to calculate the complete distribution of the forecast, as well as various inflation risk measures that have been proposed in the literature. Finally, the structural nature of the model allows computing forecasts conditional on a policy path. It also allows examining the structural sources of the forecast errors and their implications for monetary policy. Using those tools, we analyse macroeconomic developments in the euro area since the start of EMU.forecasting, DSGE models, monetary policy, euro area

Fit for planning? An evaluation of the application of development viability appraisal models in the UK planning system

The aim of this paper is to critically examine the application of development appraisal to viability assessment in the planning system. This evaluation is of development appraisal models in general and also their use in particular applications associated with estimating planning obligation capacity. The paper is organised into four themes: · The context and conceptual basis for development viability appraisal · A review of development viability appraisal methods · A discussion of selected key inputs into a development viability appraisal · A discussion of the applications of development viability appraisals in the planning system It is assumed that readers are familiar with the basic models and information needs of development viability appraisal rather than at the cutting edge of practice and/or academ

Shocks and frictions in US business cycles: a Bayesian DSGE approach

Using a Bayesian likelihood approach, we estimate a dynamic stochastic general equilibrium model for the US economy using seven macro-economic time series. The model incorporates many types of real and nominal frictions and seven types of structural shocks. We show that this model is able to compete with Bayesian Vector Autoregression models in out-of-sample prediction. We investigate the relative empirical importance of the various frictions. Finally, using the estimated model we address a number of key issues in business cycle analysis: What are the sources of business cycle fluctuations? Can the model explain the cross-correlation between output and inflation? What are the effects of productivity on hours worked? What are the sources of the “Great Moderation”? JEL Classification: E4, E5DSGE Models, monetary policy

Fit for Planning? An Evaluation of the Application of Development Viability Appraisal Models in the UK Planning System

The aim of this paper is to critically examine the application of development appraisal to viability assessment in the planning system. This evaluation is of development appraisal models in general and also their use in particular applications associated with estimating planning obligation capacity. The paper is organised into four themes: · The context and conceptual basis for development viability appraisal · A review of development viability appraisal methods · A discussion of selected key inputs into a development viability appraisal · A discussion of the applications of development viability appraisals in the planning system. It is assumed that readers are familiar with the basic models and information needs of development viability appraisal rather than at the cutting edge of practice and/or academe.

Population ageing in a small open economy – some policy experiments with a tractable general equilibrium model

This paper extends Gertler’s (1999) tractable overlapping generations model with life-cycle features by allowing for distortionary taxation, demographic transition and stochastic variation in demographic structure. The model is then used to study demographic change in the small open economy of Finland. Simulations highlight the key role played by labour market responses to ageing. When the responses of labour supply, wages, and hence private consumption, to higher taxation are consistently accounted for, population ageing has clearly much larger effects on public finance, when compared to mechanical sustainability calculations. Stochastic simulations suggest that lengthening of working time has only a modest alleviating effect on the fiscal burden of ageing. This is due to the fact that stochastic variation in the length of working time has only a relatively small effect on the model’s dependency ratio. Variation in life expectancy is clearly much more important.ageing; general equilibrium; public finance; demographic uncertainty

Uncertainty Quantification and Calibration in Well Construction Cost Estimates

The feasibility and success of petroleum development projects depend to a large degree on well construction costs. Well construction cost estimates often contain high levels of uncertainty. In many cases, these costs have been estimated using deterministic methods that do not reliably account for uncertainty, leading to biased estimates. The primary objective of this work was to improve the reliability of deterministic well construction cost estimates by incorporating probabilistic methods into the estimation process. The method uses historical well cost estimates and actual well costs to develop probabilistic correction factors that can be applied to future well cost estimates. These factors can be applied to the entire well cost or to individual cost components. Application of the methodology to estimation of well construction costs for horizontal wells in a shale gas play resulted in well cost estimates that were well calibrated probabilistically. Overall, average estimated well cost using this methodology was significantly more accurate than average estimated well cost using deterministic methods. Systematic use of this methodology can provide for more accurate and efficient allocation of capital for drilling campaigns, which should have significant impacts on reservoir development and profitability

Methods for the evaluation of alternative disaster warning systems

For each of the methods identified, a theoretical basis is provided and an illustrative example is described. The example includes sufficient realism and detail to enable an analyst to conduct an evaluation of other systems. The methods discussed in the study include equal capability cost analysis, consumers' surplus, and statistical decision theory