The BER annual econometric model of the South African economy: A cointegration version

The Bureau for Economic Research at the University of Stellenbosch has been using macroeconometric models for the purposes of short- and medium-term forecasting of the South African economy since 1981. In this paper the most recent version of the annual model is presented. This version has been estimated with cointegration, which is one of the more recently developed econometric techniques. The specific technique employed is the Engle–Granger two-step approach which provides for both a long-run cointegration equation and a short-term error-correction equation for each behaviourally explained variable. The broad structure of the model may be described as that of a conventional demand-oriented model with specific supply elements. The latter consist of a potential output measure which, in conjunction with the expenditure-determined total output, provides a measure of economy-wide capacity utilisation which then serves as a variable supply constraint in the determination of imports, (inventory) investment, prices and wages.