Comparing the Forecasting Ability of Financial Conditions Indices: The Case of South Africa
Mehmet Balcilar (),
Rangan Gupta (),
Renee van Eyden () and
Kirsten Thompson ()
Additional contact information
Kirsten Thompson: Department of Economics, University of Pretoria
No 15-06, Working Papers from Eastern Mediterranean University, Department of Economics
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 manufacturing production and inflation, while a SP specification proves to be the best for forecasting the interest rate. More importantly, statistics testing for significant differences in forecast errors across models corroborate 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)
Pages: 28 pages
New Economics Papers: this item is included in nep-for, nep-ger and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed
Downloads: (external link)
http://repec.economics.emu.edu.tr/RePEc/emu/wpaper/15-06.pdf First version, 2015 (application/pdf)
Journal Article: Comparing the forecasting ability of financial conditions indices: The case of South Africa (2018)
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)
Persistent link: https://EconPapers.repec.org/RePEc:emu:wpaper:15-06.pdf
Access Statistics for this paper
More papers in Working Papers from Eastern Mediterranean University, Department of Economics Contact information at EDIRC.
Bibliographic data for series maintained by Mehmet Balcilar ().