Abstract:
A medium-scale nonlinear dynamic stochastic general
equilibrium (DSGE) model was estimated (54 variables, 29 state variables,
7 observed variables). The model includes an observed variable
for stock market returns. The root-mean square error (RMSE) of the
in-sample and out-of-sample forecasts was calculated. The nonlinear
DSGE model with measurement errors outperforms AR (1), VAR (1)
and the linearised DSGE in terms of the quality of the out-of-sample
forecasts. The nonlinear DSGE model without measurement errors is
of a quality equal to that of the linearised DSGE model.