Forecasting performance of an estimated DSGE model for the South African economy
South African Journal of Economics
Department of Economics, Amherst College, United States; School of Economics, University of Cape Town, South Africa
We construct a small open-economy New Keynesian dynamic stochastic general equilibrium (DSGE) model for South Africa with nominal rigidities, incomplete international risk sharing and partial exchange rate pass-through. The parameters of the model are estimated using Bayesian methods, and its out-of-sample forecasting performance is compared with Bayesian vector autoregression (VAR), classical VAR and random-walk models. Our results indicate that the DSGE model generates forecasts that are competitive with those from other models, and it contributes statistically significant information to combined forecast measures. © 2011 Economic Society of South Africa.
Bayesian analysis; computer simulation; economic analysis; estimation method; exchange rate; forecasting method; general equilibrium analysis; inflation; interest rate; Keynesian theory; macroeconomics; numerical model; parameterization; performance assessment; stochasticity; vector autoregression; South Africa