Gupta, Rangan2007-08-172007-08-172006-12Gupta, R 2006, 'Forecasting the South African economy with VARs and VECMs', South African Journal of Economics, vol. 74, pp. 611-628. [http://www.blackwellpublishing.com/journal.asp?ref=0038-2280&site=1]0038-2280http://hdl.handle.net/2263/3313The 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.336054 bytesapplication/pdfenBlackwell. This article is embargoed by the published until December 2007South African economyBayesian vector error correction model (BVECM)Economic forecastingVector autoregressive (VAR) modelVector error correction model (VECM)Economic forecasting -- South Africa -- Econometric modelsSouth Africa -- Economic conditions -- Econometric modelsPostprint Article