Forecasting Key Macroeconomic Variables of the South African Economy Using Bayesian Variable Selection

Mirriam Chama-Chiliba, Rangan Gupta, Nonophile Nkambule and Naomi Tlotlego
Additional contact information
Mirriam Chama-Chiliba: Department of Economics, University of Pretoria
Nonophile Nkambule: Department of Economics, University of Pretoria

No 201132, Working Papers from University of Pretoria, Department of Economics

Abstract: We compare the forecasting performances of the classical and the Minnesota-type Bayesian vector autoregressive (VAR) models with those of linear (fixed-parameter) and nonlinear (time-varying parameter) VARs involving a stochastic search algorithm for variable selection, estimated using Markov Chain Monte Carlo methods. In this regard, we analyze the forecasting performances of all these models in predicting one- to eight-quarters-ahead of the growth rate of GDP, the consumer price index inflation rate and the three months Treasury bill rate for South Africa over an out-of-sample period of 2000:Q1-2011:Q2, using an in-sample period of 1960:Q1-1999:Q4. In general, we find that variable selection, whether imposed on a time-varying VAR or a fixed parameter VAR, and non-linearity in VARs play an important part in improving predictions when compared to the linear fixed coefficients classical VAR. However, we do not observe marked gains in forecasting power across the different Bayesian models, as well as, over the classical VAR model, possibly because the problem of over parameterization in the classical VAR is not that acute in our three-variable system.

Keywords: Forecasting; time varying parameters; variable selection; Bayesian vector autoregression (search for similar items in EconPapers)
JEL-codes: C11 C32 C52 E37 (search for similar items in EconPapers)
Pages: 11 pages
Date: 2011-12
New Economics Papers: this item is included in nep-afr and nep-for
References: View references in EconPapers View complete reference list from CitEc
Citations:

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
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:pre:wpaper:201132

Access Statistics for this paper

More papers in Working Papers from University of Pretoria, Department of Economics Contact information at EDIRC.
Bibliographic data for series maintained by Rangan Gupta ().