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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, University of Pretoria)

  • Rangan Gupta

    ()
    (Department of Economics, University of Pretoria)

  • Eric Schaling

    ()
    (Department of Economics, University of Pretoria)

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 Bills 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, the out-of-sample forecasts from the NKDSGE model are then compared with the forecasts generated from the Classical and Bayesian variants of the 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 the Bayesian VARs for inflation, but not for output growth and the nominal short-term interest rate. However, the differences in the RMSEs are not significant across the models.

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Bibliographic Info

Paper provided by University of Pretoria, Department of Economics in its series Working Papers with number 200805.

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Length: 28 pages
Date of creation: Apr 2008
Date of revision:
Handle: RePEc:pre:wpaper:200805

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Keywords: New-Keynesian DSGE Model; VAR and BVAR Model; Forecast Accuracy;

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Cited by:
  1. Bekiros, Stelios, 2014. "Forecasting with a state space time-varying parameter VAR model: Evidence from the Euro area," Economic Modelling, Elsevier, Elsevier, vol. 38(C), pages 619-626.
  2. Gupta, Rangan & Steinbach, Rudi, 2013. "A DSGE-VAR model for forecasting key South African macroeconomic variables," Economic Modelling, Elsevier, Elsevier, vol. 33(C), pages 19-33.
  3. Stelios Bekiros & Alessia Paccagnini, 2013. "On the predictability of time-varying VAR and DSGE models," Empirical Economics, Springer, Springer, vol. 45(1), pages 635-664, August.
  4. Rangan Gupta & Patrick T. Kanda & Mampho P. Modise & Alessia Paccagnini, 2014. "DSGE Model-Based Forecasting of Modeled and Non-Modeled Ination Variables in South Africa," Working Papers, Department of Research, Ipag Business School 2014-562, Department of Research, Ipag Business School.
  5. Pejman Bahramian & Mehmet Balcilar & Rangan Gupta & Patrick T. Kanda, 2014. "Forecasting South African Ination Using Non-linear Models: A Weighted Loss-based Evaluation," Working Papers, Department of Research, Ipag Business School 2014-471, Department of Research, Ipag Business School.
  6. Annari de Waal & Renee van Eyden & Rangan Gupta, 2013. "Do we need a global VAR model to forecast inflation and output in South Africa?," Working Papers, University of Pretoria, Department of Economics 201346, University of Pretoria, Department of Economics.
  7. 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, University of Pretoria, Department of Economics 201132, University of Pretoria, Department of Economics.
  8. 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, University of Pretoria, Department of Economics 201019, University of Pretoria, Department of Economics.
  9. Seedwell Hove & Albert Touna Mama & Fulbert Tchana Tchana, 2012. "Monetary policy and commodity terms of trade shocks in emerging market economies," Working Papers, Economic Research Southern Africa 307, Economic Research Southern Africa.
  10. Rangan Gupta & Sonali Das, 2010. "Predicting Downturns in the US Housing Market: A Bayesian Approach," The Journal of Real Estate Finance and Economics, Springer, Springer, vol. 41(3), pages 294-319, October.
  11. 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, University of Milano-Bicocca, Department of Economics 259, University of Milano-Bicocca, Department of Economics, revised Nov 2013.

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