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Forecasting South African macroeconomic variables with a Markov-switching small open-economy dynamic stochastic general equilibrium model

Author

Listed:
  • Mehmet Balcilar

    (Eastern Mediterranean University
    IPAG Business School
    University of Pretoria)

  • Rangan Gupta

    () (IPAG Business School
    University of Pretoria)

  • Kevin Kotzé

    (University of Cape Town, Middle Campus)

Abstract

Abstract This paper seeks to identify evidence of regime-switching behaviour in the monetary policy response function and the variance of the shocks. It makes use of various specifications of a small open-economy Markov-switching dynamic stochastic general equilibrium model that is applied to South African data from 1989 to 2014. While the in-sample statistics suggest that some of the regime-switching models may provide superior results, the out-of-sample statistics suggest that the inclusion of various forms of regime-switching does not significantly improve upon the forecasting performance of the model. The results also suggest that the central bank response function has been consistently applied over the sample period.

Suggested Citation

  • Mehmet Balcilar & Rangan Gupta & Kevin Kotzé, 2017. "Forecasting South African macroeconomic variables with a Markov-switching small open-economy dynamic stochastic general equilibrium model," Empirical Economics, Springer, vol. 53(1), pages 117-135, August.
  • Handle: RePEc:spr:empeco:v:53:y:2017:i:1:d:10.1007_s00181-016-1157-6
    DOI: 10.1007/s00181-016-1157-6
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    References listed on IDEAS

    as
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    Citations

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    Cited by:

    1. Goodness C. Aye & Mehmet Balcilar & Rangan Gupta, 2016. "The Effectiveness of Monetary Policy in South Africa under Inflation Targeting: Evidence from a Time-Varying Factor-Augmented Vector Autoregressive Model," Working Papers 201653, University of Pretoria, Department of Economics.

    More about this item

    Keywords

    Monetary policy; Inflation targeting; Markov-switching; Dynamic stochastic general equilibrium model; Bayesian estimation; Small open-economy;

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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