A New-Keynesian DSGE Model for Forecasting the South African Economy

Journal of Forecasting, Vol. 28, pp. 387–404, 2009

18 Pages Posted: 20 Sep 2010

See all articles by Rangan Gupta

Rangan Gupta

University of Pretoria - Department of Economics

Eric Schaling

Rand Afrikaans University - Department of Economics; Bank of England

Dave Liu

Stellenbosch University

Date Written: August 19, 2009

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 fi lter 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

Keywords: New-Keynesian DSGE Model, VAR and BVAR Model, Forecast Accuracy

JEL Classification: E17, E27, E32, E37, E47

Suggested Citation

Gupta, Rangan and Schaling, Eric and Liu, Guangling, A New-Keynesian DSGE Model for Forecasting the South African Economy (August 19, 2009). Journal of Forecasting, Vol. 28, pp. 387–404, 2009. Available at SSRN: https://ssrn.com/abstract=1679391

Rangan Gupta

University of Pretoria - Department of Economics ( email )

Lynnwood Road
Hillcrest
Pretoria, 0002
South Africa

Eric Schaling

Rand Afrikaans University - Department of Economics ( email )

P.O.Box 524
2006 Auckland Park
South Africa
+27 11 489 2927/7068 (Phone)
+27 11 489 3039 (Fax)

Bank of England

Threadneedle Street
London, EC2R 8AH
United Kingdom

Guangling Liu (Contact Author)

Stellenbosch University ( email )

Stellenbosch, Western Cape 7602
South Africa
27 21 808 2238 (Phone)
27 21 8084637 (Fax)

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