DSGE model-based forecasting of modelled and nonmodelled inflation variables in South Africa
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|Title:||DSGE model-based forecasting of modelled and nonmodelled inflation variables in South Africa||Authors:||Gupta, Rangan
Kanda, Patrick T.
Modise, Mampho P.
|Permanent link:||http://hdl.handle.net/10197/7351||Date:||2015||Abstract:||Inflation forecasts are a key ingredient for monetary policy-making – especially in an inflation targeting country such as South Africa. Generally, a typical Dynamic Stochastic General Equilibrium (DSGE) only includes a core set of variables. As such, other variables, for example alternative measures of inflation that might be of interest to policy-makers, do not feature in the model. Given this, we implement a closed-economy New Keynesian DSGE model-based procedure which includes variables that do not explicitly appear in the model. We estimate such a model using an in-sample covering 1971Q2 to 1999Q4 and generate recursive forecasts over 2000Q1 to 2011Q4. The hybrid DSGE performs extremely well in forecasting inflation variables (both core and nonmodelled) in comparison with forecasts reported by other models such as AR(1). In addition, based on ex-ante forecasts over the period 2012Q1–2013Q4, we find that the DSGE model performs better than the AR(1) counterpart in forecasting actual GDP deflator inflation.||Type of material:||Journal Article||Publisher:||Taylor and Francis||Copyright (published version):||2014 Taylor and Francis||Keywords:||DSGE model;Inflation;Core variables;Noncore variables||DOI:||10.1080/00036846.2014.959707||Language:||en||Status of Item:||Peer reviewed|
|Appears in Collections:||Economics Research Collection|
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