“This series examines the Federal Reserve Bank of New York’s dynamic stochastic general equilibrium (FRBNY DSGE) model—a structural model used by Bank researchers to understand the workings of the U.S. economy and provide economic forecasts.The previous post in this series showed how the Federal Reserve Bank of New York’s DSGE model can be used to provide an interpretation of the Great Recession and the slow recovery. In this post, we look at the role of the model as a forecasting tool and evaluate its forecasting performance since 2010. This analysis will give context for the last post, which will present the model’s current forecast for the U.S. economy.  As explained in a previous post, the FRBNY DSGE model is a medium-scale model of the U.S. economy that characterizes the behavior of households, firms, financial intermediaries, and the monetary and fiscal policy authorities. The model is driven by exogenous shocks, which are the source of macroeconomic fluctuations. These shocks are identified by matching the model dynamics with observed data. (This New York Fed staff report has the complete specification of the model.)  In this blog post, we discuss the real-time forecasts from the FRBNY DSGE model starting from March 2010, when we began producing policy forecasts, and provide an assessment of the model’s overall forecasting accuracy. The forecasts have been produced roughly eight times a year, about two weeks before each Federal Open Market Committee (FOMC) meeting, and have all been released in internal documents. Note that the FRBNY DSGE forecast is not the official FRBNY staff forecast and that the specification of the model has evolved over time, reflecting attempts to capture important features of the economy more precisely as well as researchers’ progress in modeling. For instance, in 2011 we introduced financial frictions, which play a crucial role in explaining the Great Recession and shaping the current forecast. In addition, we use market-based observations of the expected future federal funds rate to capture the changing nature of the forward guidance provided by the FOMC.”