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

Liu, Guangling (Dave) (), Rangan Gupta () and Eric Schaling ()
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Liu, Guangling (Dave): Department of Economics, University of Pretoria

No 200805, Working Papers from University of Pretoria, Department of Economics

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 Bills 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, the out-of-sample forecasts from the NKDSGE model are then compared with the forecasts generated from the Classical and Bayesian variants of the 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 the Bayesian VARs for inflation, but not for output growth and the nominal short-term interest rate. However, the differences in the RMSEs are not significant across the models.

Keywords: New-Keynesian DSGE Model; VAR and BVAR Model; Forecast Accuracy (search for similar items in EconPapers)
JEL-codes: E17 E27 E32 E37 E47 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-afr, nep-cba, nep-dge, nep-for and nep-mac
Date: 2008-04
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Journal Article: A New-Keynesian DSGE model for forecasting the South African economy (2009)
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Persistent link: http://EconPapers.repec.org/RePEc:pre:wpaper:200805

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