FORECASTING THE SOUTH AFRICAN ECONOMY WITH VARs AND VECMs
The paper develops a Bayesian Vector Error Correction Model (BVECM) of the South African economy for the period 1970:1-2000:4 and forecasts GDP, consumption, investment, short and long term interest rates, and the CPI. We find that a tight prior produces relatively more accurate forecasts than a loose one. The out-of-sample-forecast accuracy resulting from the BVECM is compared with those generated from the Classical variant of the VAR and VECM and the Bayesian VAR. The BVECM is found to produce the most accurate out of sample forecasts. It also correctly predicts the direction of change in the chosen macroeconomic indicators. Copyright (c) 2006 The Author. Journal compilation (c) 2006 Economic Society of South Africa.
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Volume (Year): 74 (2006)
Issue (Month): 4 (December)
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