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A New-Keynesian DSGE model for forecasting the South African economy

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  • Guangling 'Dave' Liu

    (Department of Economics and Econometrics, University of Johannesburg, South Africa)

  • Rangan Gupta

    (Department of Economics, University of Pretoria, South Africa)

  • Eric Schaling

Abstract

This paper develops a New-Keynesian Dynamic Stochastic General Equilibrium (NKDSGE) model for forecasting the growth rate of output, inflation, and the nominal short-term interest rate (91 days Treasury Bill rate) for the South African economy. The model is estimated via maximum likelihood technique for quarterly data over the period of 1970:1-2000:4. Based on a recursive estimation using the Kalman filter algorithm, out-of-sample forecasts from the NKDSGE model are compared with forecasts generated from the classical and Bayesian variants of vector autoregression (VAR) models for the period 2001:1-2006:4. The results indicate that in terms of out-of-sample forecasting, the NKDSGE model outperforms both the classical and Bayesian VARs for inflation, but not for output growth and nominal short-term interest rate. However, differences in RMSEs are not significant across the models. Copyright © 2008 John Wiley & Sons, Ltd.

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File URL: http://hdl.handle.net/10.1002/for.1103
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Bibliographic Info

Article provided by John Wiley & Sons, Ltd. in its journal Journal of Forecasting.

Volume (Year): 28 (2009)
Issue (Month): 5 ()
Pages: 387-404

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Handle: RePEc:jof:jforec:v:28:y:2009:i:5:p:387-404

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Web page: http://www3.interscience.wiley.com/cgi-bin/jhome/2966

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Cited by:
  1. Mirriam Chitalu Chama-Chiliba & Rangan Gupta & Nonophile Nkambule & Naomi Tlotlego, 2011. "Forecasting Key Macroeconomic Variables of the South African Economy Using Bayesian Variable Selection," Working Papers 201132, University of Pretoria, Department of Economics.
  2. Rangan Gupta & Sonali Das, 2010. "Predicting Downturns in the US Housing Market: A Bayesian Approach," The Journal of Real Estate Finance and Economics, Springer, vol. 41(3), pages 294-319, October.
  3. Annari de Waal & Renee van Eyden, 2013. "Forecasting key South African variables with a global VAR model," Working Papers 201346, University of Pretoria, Department of Economics.
  4. Gupta, Rangan & Steinbach, Rudi, 2013. "A DSGE-VAR model for forecasting key South African macroeconomic variables," Economic Modelling, Elsevier, vol. 33(C), pages 19-33.
  5. Rangan Gupta &  Patrick Kanda & Mampho Modise & Alessia Paccagnini, 2013. "DGSE Model-Based Forecasting of Modeled and Non-Modeled Inflation Variables in South Africa," Working Papers 259, University of Milano-Bicocca, Department of Economics, revised Nov 2013.
  6. Rangan Gupta & Rudi Steinbach, 2010. "Forecasting Key Macroeconomic Variables of the South African Economy: A Small Open Economy New Keynesian DSGE-VAR Model," Working Papers 201019, University of Pretoria, Department of Economics.
  7. Stelios Bekiros & Alessia Paccagnini, 2013. "On the predictability of time-varying VAR and DSGE models," Empirical Economics, Springer, vol. 45(1), pages 635-664, August.
  8. Seedwell Hove & Albert Touna Mama & Fulbert Tchana Tchana, 2012. "Monetary policy and commodity terms of trade shocks in emerging market economies," Working Papers 307, Economic Research Southern Africa.

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