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

Guangling Liu (), Rangan Gupta () and Eric Schaling ()

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)
Pages: 28 pages
Date: 2008-04
New Economics Papers: this item is included in nep-afr, nep-cba, nep-dge, nep-for and nep-mac
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