EconPapers    
Economics at your fingertips  
 

Comparing the forecasting ability of financial conditions indices: The case of South Africa

Mehmet Balcilar (), Rangan Gupta (), Reneé van Eyden, Kirsten Thompson and Anandamayee Majumdar

The Quarterly Review of Economics and Finance, 2018, vol. 69, issue C, 245-259

Abstract: In this paper we test the forecasting ability of three estimated financial conditions indices (FCIs) with respect to key macroeconomic variables of output growth, inflation and interest rates. We do this by forecasting the aforementioned macroeconomic variables based on the information contained in the three alternative FCIs using a Bayesian VAR (BVAR), nonlinear logistic vector smooth transition autoregression (VSTAR) and nonparametric (NP) and semi-parametric (SP) regressions, and compare the results with the standard benchmarks of random-walk, univariate autoregressive and classical VAR models. The three FCIs are constructed using rolling-window principal component analysis (PCA), dynamic model averaging (DMA) in the context of a time-varying parameter factor-augmented vector autoregressive (TVP-FAVAR) model, and a time-varying parameter vector autoregressive (TVP-VAR) model with constant factor loadings. Our results suggest that the VSTAR model performs best in the case of forecasting output and inflation, while a SP specification proves to be the best for forecasting the interest rate. More importantly, statistical testing for significant differences in forecast errors across models corroborates the finding of superior predictive ability of the nonlinear models.

Keywords: Financial conditions index; Dynamic model averaging; Nonlinear logistic smooth transition vector autoregressive model (search for similar items in EconPapers)
JEL-codes: C32 G01 E44 E32 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1062976917302776
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Comparing the Forecasting Ability of Financial Conditions Indices: The Case of South Africa (2015) Downloads
Working Paper: Comparing the Forecasting Ability of Financial Conditions Indices: The Case of 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:eee:quaeco:v:69:y:2018:i:c:p:245-259

Access Statistics for this article

The Quarterly Review of Economics and Finance is currently edited by R. J. Arnould and J. E. Finnerty

More articles in The Quarterly Review of Economics and Finance from Elsevier
Bibliographic data for series maintained by Dana Niculescu ().

 
Page updated 2019-04-16
Handle: RePEc:eee:quaeco:v:69:y:2018:i:c:p:245-259