A large factor model for forecasting macroeconomic variables in South Africa
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Date
Authors
Gupta, Rangan
Kabundi, Alain
Journal Title
Journal ISSN
Volume Title
Publisher
Elsevier
Abstract
This paper uses large Factor Models (FMs), which accommodate a large cross-section of macroeconomic time series for forecasting the per capita growth rate, inflation, and the nominal short-term interest rate for the South African economy. The FMs used in this study contain 267 quarterly series observed over the period 1980Q1–2006Q4. The results, based on the RMSEs of one- to four-quarter-ahead out-of-sample forecasts from 2001Q1 to 2006Q4, indicate that the FMs tend to outperform alternative models such as an unrestricted VAR, Bayesian VARs (BVARs) and a typical New Keynesian Dynamic Stochastic
General Equilibrium (NKDSGE) model in forecasting the three variables under consideration, hence indicating the blessings of dimensionality.
Description
Keywords
Factor Models (FMs), VAR model, Bayesian VARs (BVARs), New Keynesian Dynamic Stochastic General Equilibrium (NKDSGE), Forecast accuracy
Sustainable Development Goals
Citation
Gupta, R & Kabundi, AA 2011, 'A large factor model for forecasting macroeconomic variables in South Africa', International Journal of Forecasting, vol. 27, no. 4, pp. 1076-1088, doi:10.1016/j.ijforecast.2010.10.001