Monetary Policy and Output Growth Forecasting in a SVAR Perspective

This paper presents a short-term forecasting model of monthly South African macroeconomic variables to estimate the effects of monetary policy on output growth from a Structural Vector Autoregression  perspective. A set of forecasting experimentations are carried out to evaluate the out-of-sample static and dynamic forecast for the post-apartheid period. We carried out a combined forecast in order to compare the static with dynamic forecasting approach for improving output growth. The findings reveal that money supply is observed to exert a significant positive impact on output growth from about the eighth month. In addition, the dynamic forecasting is observed to have a more robust result and outperforms the static forecasting. It clearly brings out the growth patterns (increase and decrease) and can be justified and recommended to policymakers in calculating or in predicting the outcome of monetary policy actions for future development. However, in order to improve the predictive forecasting accuracy, the study recommends combined forecasting as dynamic forecasting is associated with risk and uncertainty that is central to its prediction and expected reliability.