A Dynamic Factor Model for Forecasting Macroeconomic Variables in South Africa
Rangan Gupta () and
Alain Kabundi ()
No 200815, Working Papers from University of Pretoria, Department of Economics
This paper uses Dynamic Factor Models (DFMs), estimated under both classical and Bayesian assumptions, which accommodates a large cross-section of macroeconomic time series for forecasting per capita growth rate, inflation, and the nominal short-term interest rate for the South African economy. The DFMs used in this study contains 267 quarterly series observed over the period of 1980Q1-2006Q4. The results, based on the RMSEs of one- to four-quarters-ahead out of sample forecasts over 2001Q1 to 2006Q4, indicate that the DFMs significantly 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: Dynamic Factor Model; VAR; BVAR; NKDSGE Model; Forecast Accuracy (search for similar items in EconPapers)
JEL-codes: C11 C13 C33 C53 (search for similar items in EconPapers)
Pages: 21 pages
New Economics Papers: this item is included in nep-afr, nep-cba, nep-for and nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:pre:wpaper:200815
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