A SMALL-SCALE DSGE MODEL FOR FORECASTING THE SOUTH AFRICAN ECONOMY

This paper uses a version of <link rid="b11">Hansen's (1985)</link> Dynamic Stochastic General Equilibrium (DSGE) model to forecast the South African economy. The calibrated model, based on annual data over the period of 1970-2000, is used to generate one- to eight-quarters-ahead out-of-sample forecast errors for the period of 2001:1 to 2005:4. The forecast errors are then compared with the unrestricted versions of the Classical and Bayesian VARs. A Bayesian VAR with relatively loose priors outperforms both the classical VAR and the DSGE model. Copyright (c) 2007 The Authors; Journal compilation (c) Economic Society of South Africa 2007.