Testing the Out-of-Sample Forecasting Ability of a Financial Conditions Index for South Africa

Kirsten Thompson (kirsten.thompson@lantic.net), Renee van Eyden (renee.vaneyden@up.ac.za) and Rangan Gupta
Additional contact information
Kirsten Thompson: Department of Economics, University of Pretoria

No 201383, Working Papers from University of Pretoria, Department of Economics

Abstract: The importance of financial instability for the world economy has been severely demonstrated since the 2007/08 global financial crisis, highlighting the need for a better understanding of financial conditions. We use a financial conditions index (FCI) for South Africa previously constructed from 16 financial variables to test whether the rolling-window estimated FCI does better than its individual financial components in forecasting key macroeconomic variables, such as output growth, inflation and interest rates. The concept of forecast encompassing is used to examine the forecasting ability of these variables controlling for data-mining. We find that the rolling-window estimated FCI has out-of-sample forecasting ability with respect to manufacturing output growth at the one, three and six month horizons, but has no forecasting ability with respect to inflation and interest rates.

Keywords: Financial conditions index; forecast encompassing; data-mining; financial crisis (search for similar items in EconPapers)
JEL-codes: C22 C53 G01 (search for similar items in EconPapers)
Pages: 22 pages
Date: 2013-12
New Economics Papers: this item is included in nep-afr and nep-for
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
Journal Article: Testing the Out-of-Sample Forecasting Ability of a Financial Conditions Index for South Africa (2015)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pre:wpaper:201383

Access Statistics for this paper

More papers in Working Papers from University of Pretoria, Department of Economics Contact information at EDIRC.
Bibliographic data for series maintained by Rangan Gupta (rangan.gupta@up.ac.za).