A large factor model for forecasting macroeconomic variables in South Africa

Rangan Gupta and Alain Kabundi ()

International Journal of Forecasting, 2011, vol. 27, issue 4, 1076-1088

Abstract: This paper uses large Factor Models (FMs), which accommodate a large cross-section of macroeconomic time series for forecasting the per capita growth rate, inflation, and the nominal short-term interest rate for the South African economy. The FMs used in this study contain 267 quarterly series observed over the period 1980Q1-2006Q4. The results, based on the RMSEs of one- to four-quarter-ahead out-of-sample forecasts from 2001Q1 to 2006Q4, indicate that the FMs tend to outperform alternative models such as an unrestricted VAR, Bayesian VARs (BVARs) and a typical New Keynesian Dynamic Stochastic General Equilibrium (NKDSGE) model in forecasting the three variables under consideration, hence indicating the blessings of dimensionality.

Keywords: Large; factor; model; VAR; BVAR; NKDSGE; model; Forecast; accuracy (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (30)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:intfor:v:27:y:2011:i:4:p:1076-1088

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