RDP 2013-07: An Empirical BVAR-DSGE Model of the Australian Economy Appendix D: Further Results

Sean Langcake and Tim Robinson

June 2013 – ISSN 1320-7229 (Print), ISSN 1448-5109 (Online)

Table D1: DSGE Estimation Results – Long Sample
Coefficient Description Prior   Posterior
    Density Mean Sth dev Mean 90% HPD
θ1 Calvo domestic prices B 0.75 0.1   0.93 0.91–0.95
ω1 Indexation, domestic B 0.3 0.05   0.40 0.33–0.48
ζR Taylor rule, smoothing B 0.5 0.1   0.63 0.55–0.72
ζπ Taylor rule, inflation N 1.5 0.1   1.51 1.35–1.66
ζva Taylor rule, output B 0.5 0.2   0.73 0.56–0.91
ζdy Taylor rule, growth B 0.5 0.2   0.17 0.02–0.33
θm Calvo import B 0.75 0.1   0.82 0.76–0.88
ωm Indexation, imports B 0.3 0.05   0.31 0.23–0.39
ρα Technology growth B 0.5 0.2   0.29 0.43–0.53
ρrp Risk premium B 0.75 0.1   0.94 0.91–0.96
ρi Investment technology B 0.75 0.1   0.50 0.38–0.62
ρα,2 Export technology B 0.75 0.1   0.78 0.68–0.88
ρg Preferences B 0.75 0.1   0.84 0.79–0.90
η″(1) Adjustment costs N 4 1   0.95 0.52–1.34
υ Habits B 0.5 0.1   0.26 0.16–0.36
Standard deviations
σrp Risk premium IG 1 1   0.46 0.35–0.57
σM Monetary policy IG 0.25 0.1   0.21 0.17–0.26
σα Technology IG 1 1   0.57 0.37–0.76
σ2 Export technology IG 2 1   2.30 2.03–2.55
σi Investment technology IG 5 1   5.08 3.36–6.68
σc Preferences IG 1 1   3.26 2.51–3.97
σ1 Domestic mark-up IG 0.5 1   0.19 0.16–0.21
σm Imports mark-up IG 0.5 1   0.32 0.15–0.50
Notes: Prior distributions are B – Beta, N – Normal, IG – inverse Gamma; HPD denotes highest probability density
Table D2: RMSE BVARX Relative to Benchmark Models
Benchmark models – excludes error-correction terms
Series Minn AR DSGE Combined Minn AR DSGE Combined
Quarterly   1-quarter-ahead     2-quarters-ahead  
Δ Exports 1.10 1.01 0.93 0.98 0.99 0.99 0.93 0.96
Δ Investment 1.03 1.06 1.05 1.08 1.08 1.19 1.00 1.10
Growth 1.04 1.07 0.93 1.04 1.19 1.16 0.96 1.09
Inflation 1.01 1.06 0.96 0.99 0.96 0.98 0.89 0.93
Cash rate 1.02 0.96 0.88 0.98 0.97 0.89 0.94 0.98
Δ Rer 1.21 1.05 0.98 1.05 1.03 0.98 0.96 1.02
Year-ended   1-year-ahead     2-years-ahead  
Δ Exports 1.12 1.03 0.74 0.90 1.28 1.05 0.81 0.93
Δ Investment 0.88 1.13 0.90 0.98 0.82 0.96 0.92 0.93
Growth 1.25 1.09 0.84 1.00 1.02 0.97 0.89 0.94
Inflation 0.97 0.99 0.90 0.94 0.96 1.00 0.99 0.98
Cash rate 0.98 0.94 1.12 1.08 0.99 1.05 1.14 1.07
Δ Rer 1.03 1.02 0.92 1.05 1.13 1.00 0.93 0.98
Notes: Values less than 1 indicate the RSME of the BVARX is less than the benchmark; 1- and 2-years-ahead interest rate forecasts are for the level; VARs have 2 lags; Minn denotes SOE Minnesota VAR; AR denotes autoregressive; Rer denotes real exchange rate