Forecasting the South African Economy: A DSGE-VAR Approach
AbstractThis paper develops an estimable hybrid model that combines the theoretical rigor of a micro-founded DSGE model with the flexibility of an atheoretical VAR model. The model is estimated via maximum likelihood technique based on quarterly data on real Gross National Product (GNP), consumption, investment and hours worked, for the South African economy, over the period of 1970:1 to 2000:4. Based on a recursive estimation using the Kalman filter algorithm, the out-of-sample forecasts from the hybrid model are then compared with the forecasts generated from the Classical and Bayesian variants of the VAR for the period 2001:1-2005:4. The results indicate that, in general, the estimated hybrid DSGE model outperforms the Classical VAR, but not the Bayesian VARs in terms of out-of-sample forecasting performances.
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Bibliographic InfoPaper provided by University of Pretoria, Department of Economics in its series Working Papers with number 200724.
Length: 21 pages
Date of creation: Jul 2007
Date of revision:
DSGE Model; VAR and BVAR Model; Forecast Accuracy; DSGE Forecasts; VAR Forecasts; BVAR Forecasts.;
Other versions of this item:
- Guangling â€˜Daveâ€™ Liu & Rangan Gupta & Eric Schaling, 2007. "Forecasting the South African Economy: A DSGE-VAR Approach," Working Papers 51, Economic Research Southern Africa.
- Liu, G. & Gupta, R. & Schaling, E., 2008. "Forecasting the South African Economy: A DSGE-VAR Approach," Discussion Paper 2008-32, Tilburg University, Center for Economic Research.
- E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation: Models and Applications
- E27 - Macroeconomics and Monetary Economics - - Macroeconomics: 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
This paper has been announced in the following NEP Reports:
- NEP-AFR-2007-11-24 (Africa)
- NEP-ALL-2007-11-24 (All new papers)
- NEP-CBA-2007-11-24 (Central Banking)
- NEP-DGE-2007-11-24 (Dynamic General Equilibrium)
- NEP-FOR-2007-11-24 (Forecasting)
- NEP-MAC-2007-11-24 (Macroeconomics)
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