FORECASTING THE SOUTH AFRICAN ECONOMY WITH VARs AND VECMs

Rangan Gupta

35 citations0/0 files storedSouth African Journal of Economics

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Forecasting Techniques and Applications Monetary Policy and Economic Impact Unemployment and Economic Growth

Abstract

Abstract The paper develops a Bayesian Vector Error Correction Model (BVECM) of the South African economy for the period 1970:1‐2000:4 and forecasts GDP, consumption, investment, short and long term interest rates, and the CPI. We find that a tight prior produces relatively more accurate forecasts than a loose one. The out‐of‐sample‐forecast accuracy resulting from the BVECM is compared with those generated from the Classical variant of the VAR and VECM and the Bayesian VAR. The BVECM is found to produce the most accurate out of sample forecasts. It also correctly predicts the direction of change in the chosen macroeconomic indicators.

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References

1987Co-Integration and Error Correction: Representation, Estimation, and Testing 1988Statistical analysis of cointegration vectors 1980Macroeconomics and Reality 1976Econometric policy evaluation: A critique 1995Likelihood-Based Inference in Cointegrated Vector Autoregressive Models 1986DEVELOPMENTS IN THE STUDY OF COINTEGRATED ECONOMIC VARIABLES 1990Inference in Linear Time Series Models with some Unit Roots 1993Introduction to Multiple Time Series Analysis

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