I’m doing out-of-sample forecasts with a small open economy DSGE model. I have 8 observables and I want to forecast 5 of them. The three remaining observables are exogenous (foreign economy modeled as a reduced form VAR). How are the observables of these exogenous variables treated when forecasting? Are their future values used for forecasts? If not, is it possible to use them?
Thanks in advance,
I am not sure I understand what you are trying to do. Forecasting usually means that future values are not observed. That of course also applies to the future values in the external block. If you want to do forecasts conditional on those values, you need to look into the
Thanks for getting back to me, and sorry for being unclear. I think you managed to answer my question anyways: If I have and want to make use of future values of the foreign block, I should use the conditional_forecast command - as the forecast command will treat their future values as unobserved and hence forecast them using (in my case) a reduced form VAR.