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Forecasting South African macroeconomic variables with a Markov-switching small open-economy dynamic stochastic general equilibrium model

Mehmet Balcilar (), Rangan Gupta () and Kevin Kotze ()

Empirical Economics, 2017, vol. 53, issue 1, 117-135

Abstract: Abstract This paper seeks to identify evidence of regime-switching behaviour in the monetary policy response function and the variance of the shocks. It makes use of various specifications of a small open-economy Markov-switching dynamic stochastic general equilibrium model that is applied to South African data from 1989 to 2014. While the in-sample statistics suggest that some of the regime-switching models may provide superior results, the out-of-sample statistics suggest that the inclusion of various forms of regime-switching does not significantly improve upon the forecasting performance of the model. The results also suggest that the central bank response function has been consistently applied over the sample period.

Keywords: Monetary policy; Inflation targeting; Markov-switching; Dynamic stochastic general equilibrium model; Bayesian estimation; Small open-economy (search for similar items in EconPapers)
JEL-codes: E32 E52 F41 (search for similar items in EconPapers)
Date: 2017
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Working Paper: Forecasting South African Macroeconomic Variables with a Markov-Switching Small Open-Economy Dynamic Stochastic General Equilibrium Model (2016) Downloads
Working Paper: Forecasting South African Macroeconomic Variables with a Markov-Switching Small Open-Economy Dynamic Stochastic General Equilibrium Model (2016)
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