Long-term portfolio management with a structural macroeconomic model

The aim of this paper is to investigate long-term portfolio management in a fully structural macro- financial framework. First, we estimate a Dynamic Stochastic General Equilibrium (DSGE) model that describes the dynamic of the US economy and financial markets. In addition to the typical macro-economic variables, the model includes fi nancial variables such as rm market values, dividend payments, and long-term government bond returns. The model provides us with long-term forecasts of key variables, which are used for the dynamic asset allocation of long-horizon investors. We show that the DSGE model outperforms an unrestricted VAR model in long-term portfolio allocation