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A New-Keynesian DSGE Model for Forecasting the South African Economy

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Author Info
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)

Additional information is available for the following registered author(s):

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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Publisher 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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Postal: PRETORIA, 0002
Phone: (+2712) 420 2413
Fax: (+2712) 362-5207
Web page: http://web.up.ac.za/default.asp?ipkCategoryID=40
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Related research
Keywords: New-Keynesian DSGE Model VAR and BVAR Model Forecast Accuracy

Other versions of this item:

Find related papers by JEL classification:
E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation
E27 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Forecasting and Simulation
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
E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation

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References listed on IDEAS
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    Other versions:
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  17. Rangan Gupta, 2006. "FORECASTING THE SOUTH AFRICAN ECONOMY WITH VARs AND VECMs," South African Journal of Economics, Economic Society of South Africa, vol. 74(4), pages 611-628, December. [Downloadable!] (restricted)
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