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FORECASTING THE SOUTH AFRICAN ECONOMY WITH VARs AND VECMs

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Rangan Gupta

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Abstract

The paper develops a Bayesian Vector Error Correction Model (BVECM) of the South African economy for the period 1970:1-2000:4 and forecasts GDP, consumption, investment, short and long term interest rates, and the CPI. We find that a tight prior produces relatively more accurate forecasts than a loose one. The out-of-sample-forecast accuracy resulting from the BVECM is compared with those generated from the Classical variant of the VAR and VECM and the Bayesian VAR. The BVECM is found to produce the most accurate out of sample forecasts. It also correctly predicts the direction of change in the chosen macroeconomic indicators. Copyright (c) 2006 The Author. Journal compilation (c) 2006 Economic Society of South Africa.

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File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1813-6982.2006.00090.x
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Publisher Info
Article provided by Economic Society of South Africa in its journal South African Journal of Economics.

Volume (Year): 74 (2006)
Issue (Month): 4 (December)
Pages: 611-628
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Handle: RePEc:bla:sajeco:v:74:y:2006:i:4:p:611-628

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  1. Rangan Gupta & Stephen M. Miller, 2009. ""Ripple Effects” and Forecasting Home Prices in Los Angeles, Las Vegas, and Phoenix," Working Papers 0902, University of Nevada, Las Vegas , Department of Economics. [Downloadable!]
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  2. Sonali Das & Rangan Gupta & Alain Kabundi, 2008. "Could We Have Predicted The Recent Downturn In The South African Housing Market?," Working Papers 200831, University of Pretoria, Department of Economics.
  3. Rangan Gupta & Alain Kabundi, 2008. "Forecasting Macroeconomic Variables Using Large Datasets: Dynamic Factor Model versus Large-Scale BVARs," Working Papers 200816, University of Pretoria, Department of Economics. [Downloadable!]
  4. Rangan Gupta & Alain Kabundi & Stephen M. Miller, 2009. "Using Large Data Sets to Forecast Housing Prices: A Case Study of Twenty US States," Working papers 2009-13, University of Connecticut, Department of Economics. [Downloadable!]
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  5. Rangan Gupta & Alain Kabundi, 2008. "Forecasting Macroeconomic Variables in a Small Open Economy: A Comparison between Small- and Large-Scale Models," Working Papers 200830, University of Pretoria, Department of Economics.
  6. Guangling (Dave) Liu & Rangan Gupta & Eric Schaling, 2008. "A New-Keynesian DSGE Model for Forecasting the South African Economy," Working Papers 200805, University of Pretoria, Department of Economics.
    Other versions:
  7. Sonali Das & Rangan Gupta & Alain Kabundi, 2009. "The Blessing Of Dimensionality In Forecasting Real House Price Growth In The Nine Census Divisions Of The Us," Working Papers 200902, University of Pretoria, Department of Economics.
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This page was last updated on 2009-11-22.

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