Ceska Narodni Banka

01/13/2021 | News release | Distributed by Public on 01/13/2021 04:01

CNB WP 7/2020 – The g3+ Model: An Upgrade of the Czech National Bank’s Core Forecasting Framework

13. 1. 2021

František Brázdik, Tibor Hlédik, Zuzana Humplová, Iva Martonosi, Karel Musil, Jakub Ryšánek, Tomáš Šestořád, Jaromír Tonner, Stanislav Tvrz, Jan Žáček

This paper introduces g3+, the new core forecasting model of the Czech National Bank (CNB), which replaced the previous g3 model in July 2019. We present the features of the new core forecasting model together with our motivation for adopting them. The new structural features and extensions were motivated by our experience with using the g3 model for more than a decade as the core forecasting tool at the CNB. The new g3+ model features a novel structural foreign economy block, oil as a production factor, heterogeneous households, and other adjustments. Also, we present a new simulation approach that allows us to emulate limited information for the simulation of conditional forecasts. Furthermore, the introduction of the g3+ model on average preserves the forecasting performance of the CNB's DSGE modeling framework.

JEL codes: C51, C53, E27, E37, F41

Keywords: Conditional forecast, DSGE, g3 model, oil, small open economy, two country model

Issued: December 2020

Download: CNB WP No. 7/2020 (pdf, 6 MB)