Forecasting with DSGE models

Dynamic Stochastic General Equilibrium (DSGE) models are designed to do policy analysis. They are based on microfoundations and calibrated or estimated to provide quantitative answers to policy scenarios and in particular study environments for which there is no historical precedent. These model are not designed for forecasting, traditional statistical tools, where ad-hoc models with minimal

A large US current account deficit is normal

The recent decades have seen a steady decline of the net financial asset position of the United States. As of 2006, the current account deficit of the US amounts to 1.6% of world GDP, US net foreign asset correspond to -5% of world GDP. Mostly everyone sees that as a huge problem and a sign the US is on the decline.Enrique G. Mendoza, Vincenzo Quadrini and José-Víctor Ríos-Rull argue that this is