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Bayesian Methods of Forecasting Inventory Investment in South Africa

Author

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  • Rangan Gupta

    (Department of Economics, University of Pretoria)

Abstract

This paper develops a Bayesian Vector Error Correction Model (BVECM) for forecasting inventory investment in South Africa. The model is estimated using quarterly data on actual sales, production, unfilled orders, price levels and interest rates, for the period of 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 VAR and the VECM, the Bayesian VAR, and the ECM of inventory investment developed by Smith et al. (2006) for the South African economy. The BVECM with the most tight prior outperforms all the other models, except for a relatively tight BVAR. This BVAR model also correctly predicts the direction of change of inventory investment over the period of 2004:1 to 2006:3.

Suggested Citation

  • Rangan Gupta, 2007. "Bayesian Methods of Forecasting Inventory Investment in South Africa," Working Papers 200704, University of Pretoria, Department of Economics.
    • Handle: RePEc:pre:wpaper:200704
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    More about this item

    Keywords

    VECM and BVECM; VAR and BVAR Model; Forecast Accuracy; BVECM Forecasts; VECM Forecasts; BVAR Forecasts; ECM Forecasts; VAR Forecasts;
    All these keywords.

    JEL classification:

    • E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation: Models and Applications
    • E27 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Forecasting and Simulation: Models and Applications
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation: Models and Applications

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