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Abstract

Forecasting models for output are presented to throw light on monetary transmission. Recent research finds multistep forecasting superior to recursive forecasting from a VAR model when structural breaks are present; there are important political and policy regime breaks in South Africa. The equilibrium correction models have a four-quarter ahead forecast horizon, appropriate for measuring interest rate effects. A stochastic trend measures underlying shifts in productivity nd other supply side trends. The inclusion of important monetary policy regime shifts, which altered the output response to interest rates, and the control for other structural changes (e.g., trade liberalization), address the Lucas critique in forecasting output growth. There are important and persistent effects of high real interest rates, which significantly constrained growth in the 1990s, and significant potential growth benefits from fiscal discipline. South African growth appears to have become more responsive to the exchange rate with increasing trade openness in the 1990s. Copyright 2002, International Monetary Fund

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Paper provided by Centre for the Study of African Economies, University of Oxford in its series CSAE Working Paper Series with number 2002-04.

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Date of creation: 2002
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Publication status: Published in IMF Staff papers 49 (November, IMF Annual Research Conference): 185-213.
Handle: RePEc:csa:wpaper:2002-04

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• C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models
• C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
• 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
• E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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