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WP 2016/4 – László Békési–Csaba Köber – Henrik Kucsera –Tímea Várnai – Balázs Világi: The macroeconomic forecasting model of the MNB

The lessons of the financial and macroeconomic crisis of 2007-2008 made the development of a new macroeconomic forecasting model necessary in the MNB. The model represents a small open economy. It is based on the DSGE philosophy but it deviates from it at several points. The new features of the model, compared to previous forecasting models of the MNB, are that the debt constraint and the heterogeneity of households and financial accelerator mechanism through the financing constraints of the firms appear. From methodological point of view, it is important that the model deviates from rational expectation hypothesis at several points and treats expectations pragmatically and flexibly. The model parameters are calibrated according to experts’ experience and SVAR estimations. The properties of the calibrated model are studied by impulse responses analysis, and the model fits into the MNB’s forecasting framework successfully.

JEL: E21, E27, E31, E37, E44, E52.

Keywords: DSGE models, forecasting, precautionary motive, buffer stock model, heterogeneous households, financial accelerator, non-rational expectations.