Gupta, Rangan2010-06-232010-06-232009-03Gupta, R 2009, 'Bayesian methods of forecasting inventory investment in South Africa', South African Journal of Economics, vol. 77, no. 1, pp. 113-126. [http://www3.interscience.wiley.com/journal/117961981/home]0038-228010.1111/j.1813-6982.2009.01199.xhttp://hdl.handle.net/2263/14324This paper develops a Bayesian Vector Error Correction Model (BVECM) for forecasting inventory investment. The model is estimated using South African quarterly data on actual sales, production, unfilled orders, price level and interest rate, for the period 1978 to 2000. The out-of-sample-forecast accuracy obtained from the BVECM over the forecasting horizon of 2001:1 to 2003:4, is compared with those generated from the classical variant of the Vector Autoregresssive (VAR) model and the VECM, the Bayesian VAR, and the recently developed ECM by Smith et al., for the South African economy. The BVECM with the most-tight prior outperforms all the other models, except for a relatively tight BVAR which also correctly predicts the direction of change of inventory investment over the period of 2004:1 to 2006:3.enWiley-Blackwell. This is the pre-peer reviewed version of the following article: Gupta, R 2009, 'Bayesian methods of forecasting inventory investment', South African Journal of Economics, vol. 77, no. 1, pp. 113-126, which has been published in final form at http://www3.interscience.wiley.com/journal/122295669/abstract.Vector error correction model (VECM)Bayesian vector error correction model (BVECM)Forecast accuracyBVECM forecastsVECM forecastsBVAR forecastsECM forecastsVAR forecastsVector autoregressive (VAR) modelInventory investmentBayesian statistical decision theoryEconomic forecasting -- Econometric modelsInvestments -- South AfricaInventories -- South AfricaPreprint Article