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A DSGE-VAR model for forecasting key South African macroeconomic variables

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  • Gupta, Rangan
  • Steinbach, Rudi

Abstract

The paper develops a Small Open Economy New Keynesian DSGE-VAR (SOENKDSGE-VAR) model of the South African economy, characterised by incomplete pass-through of exchange rate changes, external habit formation, partial indexation of domestic prices and wages to past inflation, and staggered price and wage setting. The model is estimated using Bayesian techniques on data from the period 1980Q1 to 2003Q2, and then used to forecast output, inflation and nominal short-term interest rate for one-to eight-quarters-ahead over an out-of sample horizon of 2003Q3 to 2010Q4. When the forecast performance of the SOENKDSGE-VAR model is compared with an independently estimated DSGE model, the classical VAR and six alternative BVAR models, we find that, barring the BVAR model based on the SSVS prior on both VAR coefficients and the error covariance, the SOENKDSGE-VAR model is found to perform competitively, if not, better than all the other VAR models.

Suggested Citation

  • Gupta, Rangan & Steinbach, Rudi, 2013. "A DSGE-VAR model for forecasting key South African macroeconomic variables," Economic Modelling, Elsevier, vol. 33(C), pages 19-33.
  • Handle: RePEc:eee:ecmode:v:33:y:2013:i:c:p:19-33
    DOI: 10.1016/j.econmod.2013.03.012
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    Cited by:

    1. repec:ipg:wpaper:2014-562 is not listed on IDEAS
    2. Paetz, Michael & Gupta, Rangan, 2016. "Stock price dynamics and the business cycle in an estimated DSGE model for South Africa," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 44(C), pages 166-182.
    3. 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 259, University of Milano-Bicocca, Department of Economics, revised Nov 2013.
    4. Patrick T. Kanda & Mehmet Balcilar & Pejman Bahramian & Rangan Gupta, 2016. "Forecasting South African inflation using non-linearmodels: a weighted loss-based evaluation," Applied Economics, Taylor & Francis Journals, vol. 48(26), pages 2412-2427, June.
    5. Paccagnini, Alessia, 2017. "Dealing with Misspecification in DSGE Models: A Survey," MPRA Paper 82914, University Library of Munich, Germany.
    6. Annari De Waal & Reneé Van Eyden & Rangan Gupta, 2015. "Do we need a global VAR model to forecast inflation and output in South Africa?," Applied Economics, Taylor & Francis Journals, vol. 47(25), pages 2649-2670, May.
    7. Georgiadis, Georgios & Jančoková, Martina, 2017. "Financial globalisation, monetary policy spillovers and macro-modelling: tales from 1001 shocks," Working Paper Series 2082, European Central Bank.
    8. Rangan Gupta & Patrick T. Kanda & Mampho P. Modise & Alessia Paccagnini, 2015. "DSGE model-based forecasting of modelled and nonmodelled inflation variables in South Africa," Applied Economics, Taylor & Francis Journals, vol. 47(3), pages 207-221, January.
    9. Balcilar, Mehmet & Gupta, Rangan & Kotzé, Kevin, 2015. "Forecasting macroeconomic data for an emerging market with a nonlinear DSGE model," Economic Modelling, Elsevier, vol. 44(C), pages 215-228.
    10. repec:eee:jimfin:v:81:y:2018:i:c:p:159-184 is not listed on IDEAS
    11. repec:eee:ecmode:v:66:y:2017:i:c:p:201-213 is not listed on IDEAS

    More about this item

    Keywords

    Bayesian methods; Macroeconomic forecasting; New Keynesian DSGE; Small open economy; Vector autoregressions;

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications

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