A New‐Keynesian DSGE model for forecasting the South African economy |
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| Authors: | Guangling ‘Dave’ Liu Rangan Gupta Eric Schaling |
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| Institution: | 1. Department of Economics and Econometrics, University of Johannesburg, South Africa;2. Department of Economics, University of Pretoria, South Africa;3. South African Reserve Bank Chair, University of Pretoria, South Africa;4. Center for Economic Research, Tilburg Unversity, The Netherlands, Centre for Dynamic Macroeconomic Analysis, University of St. Andrews, United Kingdom |
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| 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 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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| Keywords: | New‐Keynesian DSGE model VAR and BVAR model forecast accuracy |
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