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A New-Keynesian DSGE model for forecasting the South African economy

Listed author(s):
  • Guangling 'Dave' Liu

    (Department of Economics and Econometrics, University of Johannesburg, South Africa)

  • Rangan Gupta

    (Department of Economics, University of Pretoria, South Africa)

  • Eric Schaling

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 Bill 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, out-of-sample forecasts from the NKDSGE model are compared with forecasts generated from the classical and Bayesian variants of 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 Bayesian VARs for inflation, but not for output growth and nominal short-term interest rate. However, differences in RMSEs are not significant across the models. Copyright © 2008 John Wiley & Sons, Ltd.

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File URL: http://hdl.handle.net/10.1002/for.1103
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Article provided by John Wiley & Sons, Ltd. in its journal Journal of Forecasting.

Volume (Year): 28 (2009)
Issue (Month): 5 ()
Pages: 387-404

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Handle: RePEc:jof:jforec:v:28:y:2009:i:5:p:387-404
DOI: 10.1002/for.1103
Contact details of provider: Web page: http://www3.interscience.wiley.com/cgi-bin/jhome/2966

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