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A Small‐Scale Dsge Model For Forecasting The South African Economy

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  • Guangling (dave Liu
  • Rangan Gupta

Abstract

This paper uses a version of Hansen's (1985) Dynamic Stochastic General Equilibrium (DSGE) model to forecast the South African economy. The calibrated model, based on annual data over the period of 1970‐2000, is used to generate one‐ to eight‐quarters‐ahead out‐of‐sample forecast errors for the period of 2001:1 to 2005:4. The forecast errors are then compared with the unrestricted versions of the Classical and Bayesian VARs. A Bayesian VAR with relatively loose priors outperforms both the classical VAR and the DSGE model.

Suggested Citation

  • Guangling (dave Liu & Rangan Gupta, 2007. "A Small‐Scale Dsge Model For Forecasting The South African Economy," South African Journal of Economics, Economic Society of South Africa, vol. 75(2), pages 179-193, June.
    • Handle: RePEc:bla:sajeco:v:75:y:2007:i:2:p:179-193
    DOI: 10.1111/j.1813-6982.2007.00118.x
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    References listed on IDEAS

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    1. Ben Smit & Le Roux Burrows, 2002. "Estimating potential output and output gaps for the South African economy," Working Papers 05/2002, Stellenbosch University, Department of Economics.
    2. Harald Uhlig, 1995. "A toolkit for analyzing nonlinear dynamic stochastic models easily," Discussion Paper / Institute for Empirical Macroeconomics 101, Federal Reserve Bank of Minneapolis.
    3. Frank Smets & Raf Wouters, 2004. "Forecasting with a Bayesian DSGE Model: An Application to the Euro Area," Journal of Common Market Studies, Wiley Blackwell, vol. 42(4), pages 841-867, November.
    4. Uhlig, H.F.H.V.S., 1995. "A toolkit for analyzing nonlinear dynamic stochastic models easily," Other publications TiSEM cc1b2469-9d2f-445a-a2b3-1, Tilburg University, School of Economics and Management.
    5. Christian Zimmermann, 2001. "Forecasting with Real Business Cycle Models," Indian Economic Review, Department of Economics, Delhi School of Economics, vol. 36(1), pages 189-203, January.
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    More about this item

    JEL classification:

    • E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation: Models and Applications
    • E27 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Forecasting and Simulation: Models and Applications
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation: Models and Applications

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