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The impact of fiscal and monetary policies on manufacturing sector performance in South Africa

  • Authors: Hunter, Desireѐ
  • Date: 2023
  • Subjects: Manufacturing industries -- South Africa , Fiscal policy -- South Africa , Monetary policy -- South Africa
  • Language: English
  • Type: Doctoral theses , text
  • Identifier: http://hdl.handle.net/10353/28549 , vital:74417
  • Description: Regulatory authorities have to date utilised a strategic blend of fiscal and monetary policies in dealing with the unique set of macroeconomic conditions facing South Africa. Government policy intervention has significant implications for economic growth and output within the manufacturing environment. Heterogeneity has also been discerned in relation to the responsiveness of various industries within the manufacturing sector towards both fiscal and monetary policy variable variations. However, given weakened growth prospects, policy alignment issues have been observed. The purpose of this study was firstly, to examine the impact of fiscal and monetary variables on manufacturing sector output in South Africa and secondly, to analyse the manufacturing industry significance of the various monetary transmission mechanism channels. The study made use of quarterly and monthly data to achieve these stated objectives, dated between 1998 and 2020. To achieve the first objective, the study employed the Autoregressive Distributed Lag (ARDL) model given the order of integration of the variables. The empirical results revealed significant, positive relations between tax revenue, deficit financing, nominal effective exchange rate (NEER) and money supply (M3) for total manufacturing (LTOTAL). Contrastingly, there were negative links between LTOTAL, government spending and the lending rate. At a disaggregated industry level, there were positive relations with tax revenue in food and wood industries, although tax revenue was significantly negative for metals. Likewise, to LTOTAL, linkages with spending were significantly negative for wood and metal industries but positive for chemicals. Negative spending signage could be a result of crowding-out. For deficit financing, positive associations within chemicals did not conform to expectations. Similarly, to LTOTAL, wood and metal industries conformed to expectations of negative relations with the lending rate. In respect of the NEER in food and wood production, significant, positive links were established. Contrastingly, a negative linkage existed for chemical activities at the 5% level. Concerning M3 and akin to LTOTAL, the relation with metal industries was positive. However, negative findings for food and chemicals contradicted expectations, suggesting money supply was not efficiently utilised in managing monetary variables in the long-term. The second objective of the study focused on analysing manufacturing industry significance of the various monetary transmission mechanism channels. The Vector Error Correction Model (VECM) were employed to analyse the relationship between the variables. Impulse response and variance decomposition were also constructed to further trace which channel is more significant in influencing manufacturing output. The empirical results revealed that the interest rate channel occupied a relatively significant role in both LTOTAL and several selected manufacturing industries. Shocks accounted for 9.71%, 11.96% and 14.28% of the variance in LTOTAL, metal and chemical industries. The asset price channel also appeared relatively significant, with shocks to the FTSE/JSE all-share index explaining 18.21% and 21.13% of the variation in food and wood production, signifying the most relevant channel for these particular industries and representing the second most important channel for LTOTAL and the other remaining industries. The exchange rate channel also presented as being a more relevant channel for food and wood, but occupied little role in LTOTAL, whilst the credit channel was relatively ineffectual for both LTOTAL and all industries examined. The results obtained imply that government should exercise caution and demonstrate fiscal restraint and that the South African Reserve Bank (SARB) need to take greater consideration of output fluctuations in monetary policy setting. Research has dictated that an expansionary fiscal policy is generally required as a means to achieving increased growth. However, findings obtained at both the aggregate and disaggregated manufacturing level in South Africa largely varied. This implies significant heterogeneity within the South African manufacturing sector in respect of fiscal policy responses. Expansionary fiscal stimulus packages need to be better targeted towards industries that will most benefit. Similarly, monetary policy responses at the aggregate and disaggregated manufacturing level in South Africa were heterogeneous and furthermore, differed when examining combined policy impacts. There was also a heterogeneous response with respect to relevance of the channels, via which monetary policy operated, with the interest rate channel dominating. SARB do take into consideration output fluctuations in policy setting but this is not currently emphasised or legislated. , Thesis (DCom) -- Faculty of Management and Commerce, 2023
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  • Date Issued: 2023

The impact of South African monetary policy on output and price stability in Namibia

  • Authors: William, Anna Martha Tandakos
  • Date: 2020
  • Subjects: Common Monetary Area (Organization) , Monetary unions -- Africa, Southern , Monetary policy -- South Africa , Monetary policy -- Namibia , Repurchase agreements -- South Africa , Repurchase agreements -- Namibia , Inflation (Finance) -- South Africa , Inflation (Finance) -- Namibia , Namibia -- Economic conditions , Transmission mechanism (Monetary policy)
  • Language: English
  • Type: Thesis , Masters , MCom
  • Identifier: http://hdl.handle.net/10962/167709 , vital:41505
  • Description: Namibia is a member country of the Common Monetary Area (CMA) with Lesotho, Swaziland and South Africa. South Africa is the anchor country to which the smaller member states have surrendered monetary policy authority. This thesis therefore examines the empirical relationship between the South Africa repo rate (SArepo) on the one hand and Namibia’s repo rate (Namrepo), Prime Lending Rate (PLR), Private Sector Credit Extension (PSCE), Consumer Price Index (CPI) and Gross Domestic Product (GDP) on the other hand. The credit channel of the monetary policy transmission mechanism informs the theoretical foundation of the thesis. Vector Autoregression modelling, variance decomposition and impulse response functions were used to explore the nature and strength of the relationship between the SArepo and said variables in Namibia. This thesis used quarterly data for the period 2003 to 2017. The variation in the Namrepo was predominantly explained by the SArepo, which confirmed that the Namrepo strongly followed the SArepo. The impulse response function results found that the impact of a contractionary monetary policy shock (an increase in the SArepo) lasted for up to six quarters before the effect started to fade. The Namrepo exhibited a positive response to an increase in the SArepo, although the magnitude of the response started to fade after the third quarter. The PLR, as a representative of market rates in Namibia, also exhibited a positive response to an increase in the SArepo. The results were similar for the Namrepo and the PLR because changes to the NamRepo are passed through immediately to the market interest rates. On the real variables, the study found that a contractionary monetary policy shock initiated in South Africa resulted in an increase in inflation in Namibia of less than 0.4 percent, whereas output declined by less than 1.0 percent. Interestingly, a Namibia (domestic) contractionary monetary policy shock resulted in a decline in prices of less than 0.4 percent. GDP, on the other hand, exhibited a positive response to a contractionary monetary shock, with an increase of less than 2.0 percent in the first four quarters of the period observed. The results reflected that a contractionary monetary policy shock from South Africa was more effective with regard to its impact on GDP; however, a domestic monetary policy shock was more effective at impacting on domestic inflation compared to the impact from South Africa.
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  • Date Issued: 2020

The exchange rate volatility and inflation rate in South Africa

  • Authors: Milisi, Busisiwe
  • Date: 2015
  • Subjects: Foreign exchange rates -- South Africa , Monetary policy -- South Africa , Inflation (Finance) -- South Africa
  • Language: English
  • Type: Thesis , Masters , MA
  • Identifier: http://hdl.handle.net/10948/9151 , vital:26469
  • Description: The study examines exchange rate volatility and inflation in South Africa over the period of 1987- 2012 using annual data. With the use of VAR, ADF unit root testing and Johansen for cointegration the study examines the relationship between exchange rate volatility and inflation in South Africa. The study also examines other variables, which are Money Supply, Trade Openness, Real Interest Rate and Real Gross Domestic Product (RGDP), if they had an impact on inflation and had contributed significantly to inflation during the period under review. All macroeconomic variables were identified to have an impact on inflation in the long-run. Exchange rate volatility was identified as the main variable that had substantial impact on inflation rate. The study recommended the current system used by the authorities was working well, as they can pursue a countercyclical macro policy, but also continue to manage the float by intervening to stabilize the exchange rate. The reason for this recommendation was that because one of the advantages of floating exchange rate is freeing internal policy, with a floating exchange rate, balance of payments disequilibrium would be rectified by a change in the external price of the currency. However, with a fixed rate, curing a deficit could involve a general deflationary policy resulting in unpleasant consequences for the whole economy such as unemployment.
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  • Date Issued: 2015

The effect of real exchange rate volatility on export performance: evidence from South Africa (2000-2011)

  • Authors: Chamunorwa, Wilson
  • Date: 2014
  • Subjects: Monetary policy -- South Africa , Economic development -- South Africa , Foreign exchange rates -- South Africa
  • Language: English
  • Type: Thesis , Masters , M Com
  • Identifier: vital:11499 , http://hdl.handle.net/10353/d1018600 , Monetary policy -- South Africa , Economic development -- South Africa , Foreign exchange rates -- South Africa
  • Description: The effect of real exchange rate volatility on export performance: evidence from South Africa (2000-2011) This study sought to investigate the relationship between exchange rate volatility and export performance in South Africa. The main objective of the study was to examine the impact of exchange rate volatility on export performance in South Africa. This relationship was examined using GARCH methods. Exports were regressed against real effective exchange rate, trade openness and capacity utilisation. The research aimed to establish whether exchange rate volatility impacts negatively on export performance in the manner suggested by the econometric model. The result obtained showed that exchange rate volatility had a significantly negative effect on South African exports in the period 2000-2011.
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  • Date Issued: 2014

The functioning of the interbank market and its significance in the transmission of monetary policy

  • Authors: De Angelis, Catherine
  • Date: 2013-06-11
  • Subjects: South African Reserve Bank , Monetary policy -- South Africa , Foreign exchange rates -- South Africa , Money market -- South Africa , Banks and banking -- South Africa , Repurchase agreements -- South Africa , South Africa -- Economic policy , South Africa -- Economic conditions
  • Language: English
  • Type: Thesis , Masters , MCom
  • Identifier: vital:1075 , http://hdl.handle.net/10962/d1008054 , South African Reserve Bank , Monetary policy -- South Africa , Foreign exchange rates -- South Africa , Money market -- South Africa , Banks and banking -- South Africa , Repurchase agreements -- South Africa , South Africa -- Economic policy , South Africa -- Economic conditions
  • Description: Monetary policy in South African is the primary means by which the authorities can influence activity in the overall economy. The South African Reserve Bank accommodates banks through repo transactions for which they charge the repo rate. The most important market in the transmission of the repo rate to the rest of the economy is the interbank market. As such, a detailed discussion of this market is given. In September 200 I the monetary authorities made certain adjustments to the repo system of accommodation, which included changing the repo rate from a floating rate to a fixed rate that would be administratively determined by the MPC. This was done to address certain weaknesses in the floating rate system. This thesis examines and compares the period before and after the adjustments to the repo system, with the aim of determining whether or not the monetary authorities achieved the goals intended from making this change. The repo rate, prime interbank rate, 3-month NCO rate and the prime lending rate are analysed using the Engle-Granger two variable approach and an ECM model to test for causality. It was found that the monetary authorities did not achieve their intended goals as the relationship between the repo rate and the interbank rate was more significant in the first period. Furthermore, the direction of causality the authorities hoped to achieve by implementing the changes were in fact already in place. As such the adjustments to the system changed the transmission mechanism from the one desired by the authorities to one that was not intended. The conclusions reached by this study show that, in terms of the objectives of the monetary authorities, the previous repo system functioned better. , KMBT_363 , Adobe Acrobat 9.54 Paper Capture Plug-in
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Central Bank policy and the exchange rate under an inflation targeting regime: a case dtudy of South Africa

  • Authors: Gonzo, Prosper
  • Date: 2013
  • Subjects: Foreign exchange rates -- Government policy -- South Africa , Inflation (Finance) -- South Africa , Monetary policy -- South Africa , Banks and banking, Central -- South Africa , South Africa -- Economic conditions , Banking industry -- Finance -- South Africa
  • Language: English
  • Type: Thesis , Masters , M Com
  • Identifier: vital:11476 , http://hdl.handle.net/10353/d1015043 , Foreign exchange rates -- Government policy -- South Africa , Inflation (Finance) -- South Africa , Monetary policy -- South Africa , Banks and banking, Central -- South Africa , South Africa -- Economic conditions , Banking industry -- Finance -- South Africa
  • Description: This work examined the optimality of the inclusion of the exchange rate in the reaction function of the Central Bank in an inflation targeting framework. The study attempts to answer the question whether the exchange rate should have an independent role in an open economy Taylor-type rule. To this end, a Taylor-type rule is incorporating the exchange rate is estimated by the cointegration and vector error correction modeling (VECM) using quarterly data for the period of 1995 to 2009. The empirical studies point out the importance of the exchange rates in explaining and forecasting the behaviour of the South African Reserve Bank monetary policy control variable.
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  • Date Issued: 2013

Dynamic linkages between monetary policy and the stock market: the case of South Africa

  • Authors: Mabitle, Mope
  • Date: 2013
  • Subjects: Johannesburg Stock Exchange , South African Reserve Bank , Monetary policy -- South Africa
  • Language: English
  • Type: Thesis , Masters , M Com
  • Identifier: vital:11483 , http://hdl.handle.net/10353/d1015290 , Johannesburg Stock Exchange , South African Reserve Bank , Monetary policy -- South Africa
  • Description: This study analyses the linkage between monetary policy and the stock market in South Africa using monthly data for the period from 2000 to 2010. It provides an overview of the Johannesburg Stock Exchange and the monetary regimes adopted by the South African Reserve Bank since the 1960s and the interrelation between the monetary variables and the stock market. It also provides a review of literature, both theoretical and empirical on the linkages between the two variables. Based on the review of literature, a Vector Autoregression [VAR] model was chosen as a method of analyzing the relationship between the two variables. The empirical results revealed that there is no long term relationship between the variables, however, in the short-run there is a dynamic relationship between monetary policy and the stock market in South Africa. This implies that innovations in the stock market affect the implementation of monetary policy and vice-versa. The study recommended that monetary authorities should pay attention to the fact that the stock market performance has a great impact on their decision making due to the fact it is greatly affected by repo rates.
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  • Date Issued: 2013

Money supply endogeneity : an empirical investigation of South African data (2000Q1-2011Q4)

  • Authors: Schady, Stuart William
  • Date: 2013 , 2013-04-29
  • Subjects: Monetary policy -- South Africa , Inflation targeting -- South Africa , Gross domestic product -- South Africa , Bank loans -- South Africa , Money supply -- South Africa , Endogenous growth (Economics) , Domestic credit extension
  • Language: English
  • Type: Thesis , Masters , MCom
  • Identifier: vital:928 , http://hdl.handle.net/10962/d1001454 , Monetary policy -- South Africa , Inflation targeting -- South Africa , Gross domestic product -- South Africa , Bank loans -- South Africa , Money supply -- South Africa , Endogenous growth (Economics)
  • Description: This study is about whether the money supply in South Africa under a monetary policy regime of inflation‐targeting is exogenously or endogenously determined. The proposition of an exogenous money supply has been offered by monetarists, where the Central Bank determines the quantity of money supplied to the economy and this has a causal influence on income and credit extension. The endogenous money theory is a post‐Keynesian proposition whereby the money creation is determined by banks adjusting their responses to demands for credit‐money from economic agents. The data analysis is from 2000Q1 to 2010Q4 and entails the use of the variables monetary base (MB), domestic credit extension (DCE), M3, and gross national product (GDP). All variables are logged. The empirical tests conducted start with the Augmented Dickey‐Fuller unit root test to determine the variables order of integration. Johansen cointegration tests are done followed by Vector Error‐Correction Models (VECMs) and Granger causality tests to determine whether there is unidirectional or bidirectional causality between variables over the long and short‐run. Based on the results of the testing it was discovered that over the inflation‐targeting regime money supply in South Africa was endogenously determined. Furthermore, the data best supports the Accommodationist analysis of endogenous money as opposed to that of Structuralism and Liquidity Preference , Adobe Acrobat 9.53 Paper Capture Plug-in
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  • Date Issued: 2013

Financial liberalisation and economic growth in South Africa

  • Authors: Sibanda, Hlanganani Siqondile.
  • Date: 2012
  • Subjects: Economic development -- South Africa , Monetary policy -- South Africa , Finance -- Management , Capital movements -- South Africa , Free trade -- South Africa , Expenditures, Public
  • Language: English
  • Type: Thesis , Masters , M Com
  • Identifier: vital:11471 , http://hdl.handle.net/10353/d1007131 , Economic development -- South Africa , Monetary policy -- South Africa , Finance -- Management , Capital movements -- South Africa , Free trade -- South Africa , Expenditures, Public
  • Description: This study examined the impact of financial liberalisation on economic growth in South Africa. The study used quarterly time series data for the period 1980 to 2010. A vector error correction model was used to determine the short run and long run effects of financial liberalisation on economic growth in South Africa. The other explanatory variables considered in this study were government expenditure, investment ratio, public expenditure on education and trade openness. Results from this study revealed that financial liberalisation, government expenditure and public expenditure on education have a positive impact on economic growth while trade openness negatively affects economic growth in South Africa. Policy recommendations were made using these results.
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  • Date Issued: 2012

An investigation into the demand for money in South Africa during the period (1990-2009)

  • Authors: Simawu, Moreblessing https://orcid.org/0000-0003-4413-4660
  • Date: 2011
  • Subjects: Demand for money -- South Africa , Monetary policy -- South Africa
  • Language: English
  • Type: Master's theses , text
  • Identifier: http://hdl.handle.net/10353/24421 , vital:62789
  • Description: A stable money demand function plays a vital role in the analysis of macroeconomics, especially in the planning and implementation of monetary policy. With the use of Johansen cointegration and error correction model estimates, this study examines the existence of a stable long-run relationship between real money demand (RM2 and RM3) and its explanatory variables, in South Africa, for the period 1990-2009. The explanatory variables used in this study are selected on the basis of different monetary theories and empirical works, including the Keynesian, Classical and Friedman’s modern quantity theory of money. Based on these theories, the explanatory variables used in this thesis are real income, an interest rate, the inflation rate ,the exchange rate and foreign interest rate. The signs of the coefficients of the variables are as expected from economic theory. The coefficients of real income, the exchange rate and foreign interest rate are positive, while the coefficients of the interest rate and inflation rate are negative. This study augments the cointegration and vector autoregression (VAR) analysis with impulse response and variance decomposition analyses to provide robust long run effects and short run dynamic effects on the real money demand. In addition a foreign interest rate to capture the impact of capital mobility on money demand in South Africa was used. Results from the Johansen test suggest that real money demand (RM2 and RM3) and its all explanatory variables are cointegrated. Hence, there is a long-run equilibrium relationship between the real quantity of money demanded and five broadly defined macroeconomic components namely, real income, an interest rate, the inflation rate, foreign interest rate and the exchange rate in South Africa. Overall, the study finds that the coefficients of the equilibrium error terms are negative, as expected, and significantly different from zero, implying that 0.16 and 0.1 of the discrepancy between money demand and its explanatory variables is eliminated in the following quarter. Application of CUSUM and CUSUMSQ stability test showed that real money demand (M2 and M3) is stable in South Africa. The impulse response analysis provided evidence that the real M3 money, national income, rate of inflation and the foreign interest rate have a significant impact on the real M3 money demand in the short run. However, remaining variables (the real exchange rate and prime overdraft rate), have only a transitory effect on the real M3 money demand. There was further evidence that real exchange rate, the rate of inflation and the foreign interest rate, have a significant impact on the real M2 money demand in the short run. However, remaining variables (the national income and prime overdraft rate), have only a transitory effect on the real M2 money demand. Results from the variance decompositions of the real money demand are basically similar to those from the impulse response analysis and reveal that the fundamentals explain some, but not all, of the variations of the real money demand. The results showed that the national income explains the largest component of the variation in the real M2 money demand followed by the exchange rate and foreign interest rate. Shocks to the other variables continued to explain an insignificant proportion of the variation in the real M2 money demand. The national income also explains the largest component of the variation in the real M3 money demand followed by the foreign interest rate and exchange rate. Shocks to the other variables continued to explain a less significant proportion of the variation in the real M3 money demand.The study finds that both real M2 and M3 are stable which makes monetary targeting a viable policy option for the SARB. , Thesis (MCom) -- Faculty of Management and Commerce, 2011
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  • Date Issued: 2011

Fiscal policy and unemployment in South Africa 1980 to 2010

  • Authors: Murwirapachena, Genius
  • Date: 2011
  • Subjects: Fiscal policy -- South Africa , Monetary policy -- South Africa , Labor economics -- South Africa , Unemployment -- South Africa , Labor policy -- South Africa
  • Language: English
  • Type: Thesis , Masters , M Com
  • Identifier: vital:11458 , http://hdl.handle.net/10353/544 , Fiscal policy -- South Africa , Monetary policy -- South Africa , Labor economics -- South Africa , Unemployment -- South Africa , Labor policy -- South Africa
  • Description: Unemployment is one of the greatest and most complex challenges facing South Africa. Just like most developing countries, South Africa has been using the fiscal policy framework as a tool to alleviate the high rates of unemployment. This study examined the impact of fiscal policy on unemployment in South Africa. The study used annual time series data for the period 1980 to 2010. A vector error correction model was used to determine the effects of fiscal policy aggregates on unemployment in South Africa. The fiscal policy aggregates considered in this study were government investment expenditure, government consumption expenditure and tax. Results from this study revealed that government consumption expenditure and tax have a positive impact on unemployment while government investment expenditure negatively affects unemployment in South Africa. Policy recommendations were made using these results.
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  • Date Issued: 2011

Identifying the interdependence between South Africa's monetary policy and the stock market

  • Authors: Muroyiwa, Brian
  • Date: 2011
  • Subjects: Monetary policy -- South Africa , Stock exchanges -- Law and legislation -- South Africa , Interest rates -- South Africa , Securities -- Prices -- South Africa
  • Language: English
  • Type: Thesis , Masters , MCom
  • Identifier: vital:982 , http://hdl.handle.net/10962/d1002716 , Monetary policy -- South Africa , Stock exchanges -- Law and legislation -- South Africa , Interest rates -- South Africa , Securities -- Prices -- South Africa
  • Description: This study estimates the interdependence between South Africa‟s monetary policy and stock market performance, utilising structural vector autoregression (SVAR) methodology. The study finds that a stock price shock which decrease stock prices by 100 basis points leads to 5 basis points decrease in interbank rate. A monetary policy shock that increases the interbank rate by l percent leads to decrease in real stock prices by 1 percent. This result for South Africa is similar to the result by Bjornland and Leteimo (2009) which earlier concluded that there was a high interdependence between interest rate setting and stock prices. However the magnitude of the relationship is relatively lower for South Africa compared to that of the United States of America (USA). The result of the current study is also very much consistent with the argument that the South African stock market is resource-based and so is influenced by external shocks, meaning monetary policy shock does not have as much impact on stock market in South Africa as in the USA. However the SARB may have to consider watching movements in stock prices so that booms in stock markets do not defeat central bank monetary policy thrusts. The stock price market is an essential source of information for monetary policy in South Africa.
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  • Date Issued: 2011

Monetary policy transmission in South Africa: a comparative analysis of credit and exchange rate channels

  • Authors: Sebitso, Nathaniel Maemu
  • Date: 2011
  • Subjects: Monetary policy -- South Africa , Foreign exchange market -- South Africa , Financial crises -- South Africa , South Africa -- Economic conditions , South Africa -- Economic policy , Banks and banking -- South Africa
  • Language: English
  • Type: Thesis , Masters , MCom
  • Identifier: vital:1129 , http://hdl.handle.net/10962/d1020851
  • Description: This thesis focuses on monetary policy transmission and particularly seeks to examine the impact of credit and exchange rate channels of monetary policy transmission in the South African economy. South Africa's monetary policy has gone through several changes over the past thirty years. In this respect, there is a need for robust empirical evidence on the effects of these channels on inflation and output. The thesis employs a structural vector autoregressive (SVAR) model to identify monetary transmission in South Africa for the period 1994:q4 - 2008:q2. The form of the SVAR used in this thesis is based on the fact that South Africa is a small open economy, which means that external shocks are an important driver of domestic activity. The impulse responses and variance decomposition results show that the repo rate, credit and exchange rate play a role in terms of their impact on inflation and output. The dynamic responses to the identified monetary policy shock are consistent with standard theory and highlight the importance of the interest rate channel. A shock to the interest rate, increasing it by one standard deviation, results in a persistent fall in credit. The response of output is immediate as it falls and bottoms out within the second year. Inflation shows a lagged response, it is positive within the first year as the exchange rate depreciates but in subsequent quarters inflation responds negatively as expected. Inflation falls and reaches a minimum by approximately eight quarters then moves towards baseline. The exchange rate shows delayed appreciation. The shock to the repo interest rate leads to an immediate depreciation of the exchange rate in the first two quarters as output declines, followed by an appreciation in the third and sixth quarter. Due to larger error bounds the impact of the repo rate on the exchange rate could be less effective within the first two years. The impulse responses suggest that monetary policy plays an effective role in stabilising the economy in response to a credit shock, notwithstanding large standard error bounds. Hence, the monetary authority reacts by increasing the repo rate as a result of inflation. The impact of credit on output is positive but is offset to some extent by the rising repo rate. In response to the rand appreciation, the monetary authority reduces the repo rate significantly during the first year with the maximum impact in the second year and then returns to baseline thereafter. Therefore the monetary authority reduces the repo rate, probably to stabilise falling inflation. The result shows that inflation falls as a result of the rand appreciation. A shock to the exchange rate causes a rise in output, though small in magnitude, which is persistent but reaches baseline at the end of the period. This result could reflect the effects of the resultant fall in the repo rate and a persistent rise in credit over the whole period, which tends to increase output. The exchange rate shows an obvious and stronger immediate impact on inflation compared to credit impact on inflation. However, the credit shock has an obvious and stronger impact on output compared to an exchange rate impact on output. However, the large standard error bounds may imply that credit and exchange rate channels are not as effective in the short run. It is important to note that the results are based on the SVAR model estimated with percentage growth rate of the variables. The variance decomposition result is in line with the impulse responses and shows that the exchange rate and credit channels could be important transmission channels in South Africa over the chosen sample period. The exchange rate and credit shocks show a stronger effect on inflation than on output, looking at both the impulse responses and variance decomposition results. The reaction of the repo interest rate to the credit and exchange rate shocks comes out as expected. The repo rate increases as a result of an increase in the credit and falls as a result of the currency appreciation.
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  • Date Issued: 2011

Volatility transmission across South African financial markets: does the bull – bear distinction matter?

  • Authors: Jaramba, Toddy
  • Date: 2011
  • Subjects: Finance -- South Africa , Financial institutions -- South Africa , Monetary policy -- South Africa , Portfolio management -- South Africa , Stock exchanges -- South Africa , Foreign exchange -- Mathematical models , Bond market -- South Africa
  • Language: English
  • Type: Thesis , Masters , MCom
  • Identifier: vital:1106 , http://hdl.handle.net/10962/d1013396
  • Description: The volatility transmission in financial markets has important implications for investment decision making, portfolio diversification and overall macroeconomic stability. This paper analyses volatility transmission across four South African financial markets that is the stock, bond, money and foreign exchange markets, using daily data for the period 2000-2010. It also shows whether the volatilities in the SA financial markets present a different behaviour in bull and bear market phases. The effects of the international markets volatility to the local markets volatility was also looked at in this study. To obtain estimates of market volatility, the study experimented with various volatility models that include the GARCH, EGARCH and TARCH. To examine volatility interaction and the transmission of volatility shocks, a VAR model was estimated together with block exogeneity, impulse response and variance decomposition. The study found that there is limited volatility transmission across the SA financial markets. The study also found that the money market is the most exogenous of all markets since the other three financial markets volatility is insignificant to the money market (see impulse response results). For the bond market, volatility transmission was characterized with a decreasing trend. With regard to international markets volatility, it concluded that, the shocks in the international markets will eventually affect the movement in the local markets. The results also highlighted that, world and local markets are important in accelerating the volatility transmission in SA financial markets depending on whether they are in their bull or bear phases. In the case of South Africa, the study found that volatility transmission across markets is higher during bear market periods than bull market periods. Basing on the study results which show that the volatility transmission is limited across SA financial markets, the implication to local and international investors is that there is a greater potential for diversifying risk by investing in different South African financial markets.
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  • Date Issued: 2011

A comparative analysis of the divisia index and the simple sum monetary aggregates for South Africa

  • Authors: Moyo, Solomon Simbarashe
  • Date: 2009
  • Subjects: Monetary policy -- South Africa , Money supply -- South Africa , Inflation finance -- South Africa , Index numbers (Economics)
  • Language: English
  • Type: Thesis , Masters , MCom
  • Identifier: vital:945 , http://hdl.handle.net/10962/d1002679 , Monetary policy -- South Africa , Money supply -- South Africa , Inflation finance -- South Africa , Index numbers (Economics)
  • Description: The effectiveness of monetary policy in achieving its macroeconomic objectives such as price stability and economic growth depend on the monetary policy tools that are implemented by the Central Bank. Monetary aggregates are one of the tools that have been used as indicators of economic activity and as intermediate targets to achieve these economic objectives. Until recently, monetary aggregates have been questioned and criticised on their usefulness in monetary policy. This has been attributed to the economic, financial and technological developments that have distorted the relationship between monetary aggregates and major macroeconomic variables. This study investigates the relevance of monetary aggregation by comparing the traditional simple sum and Divisia index monetary aggregates which was constructed for the first time for South Africa using the Tornquist-Theil method. The Polynomial Distributed Lag model is employed to compare the performance of these monetary aggregates using their relationship with inflation and manufacturing index. Furthermore, the aggregates are compared in terms of their controllability and information content. Overall, the study found a very strong relationship between inflation and all the monetary aggregates. However, more specifically the results suggested that the Divisia indices are superior to the simple sum in terms of predicting inflation. The evidence further suggests that the Divisia aggregates provide higher information about inflation than the simple sum aggregates. Regarding the controllability of the monetary aggregates, the findings suggest that the monetary authorities can hardly control the monetary aggregates using monetary base. Finally, the relationship between manufacturing index and all the monetary aggregates was very weak.
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  • Date Issued: 2009

An analysis of the money market linkages between South Africa and selected major world economies

  • Authors: Barnor, Joel A
  • Date: 2009
  • Subjects: South African Reserve Bank , Banks and banking, Central -- South Africa , Money market -- South Africa , Monetary policy -- South Africa , Foreign exchange rates -- South Africa , International economic relations , Interest rates -- South Africa , Financial institutions -- South Africa
  • Language: English
  • Type: Thesis , Masters , MCom
  • Identifier: vital:956 , http://hdl.handle.net/10962/d1002690 , South African Reserve Bank , Banks and banking, Central -- South Africa , Money market -- South Africa , Monetary policy -- South Africa , Foreign exchange rates -- South Africa , International economic relations , Interest rates -- South Africa , Financial institutions -- South Africa
  • Description: Globalisation and financial liberalisation has increased the linkages across countries in recent times. The existence of money market links has important implications for both domestic monetary policy and for investment decisions. This study examines the linkages between South Africa’s money market and selected major international money markets. The objectives of the study are firstly to examine the links between the repo rate of South Africa and the central bank rates of the EU, Japan, UK and US. Secondly, is to compare the influence of domestic and foreign monetary policy decisions on South Africa’s money market. The third objective is to examine the long run relationship between the South African money market and the money markets of its major trading partners. Three estimation techniques are used to examine the different links. Principal components analysis, four tests of cointegration, and stationarity tests of the spreads/risk premium between South Africa’s interest rates and the interest rates of the other countries. All three techniques show that there is no long-run link between South Africa’s central bank rates and the central bank rates of the other countries. This shows that the repo rate does not depend on movements in other central bank rates. Domestic money market interest rates respond strongly to changes in the repo rate whilst showing no dependence on central bank rates of the other countries. This confirms the autonomy of the South African Reserve Bank in carrying out policy objectives. When the risk premium is accounted for under the third technique, evidence of integration is found. This indicates that the risk premium plays a crucial part in the level of integration between South Africa and the countries included in the study.
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  • Date Issued: 2009

An analysis of exchange rate pass-through to prices in South Africa

  • Authors: Karoro, Tapiwa Daniel
  • Date: 2008
  • Subjects: Foreign exchange rates -- South Africa , Monetary policy -- South Africa , Inflation (Finance) -- South Africa , Prices -- South Africa , Banks and banking -- South Africa , South Africa -- Economic policy
  • Language: English
  • Type: Thesis , Masters , MCom
  • Identifier: vital:953 , http://hdl.handle.net/10962/d1002687 , Foreign exchange rates -- South Africa , Monetary policy -- South Africa , Inflation (Finance) -- South Africa , Prices -- South Africa , Banks and banking -- South Africa , South Africa -- Economic policy
  • Description: The fact that South Africa has a floating exchange rate policy as well as an open trade policy leaves the country’s import, producer and consumer prices susceptible to the effects of exchange rate movements. Given the central role that inflation targeting occupies in South Africa’s monetary policy, it becomes necessary to determine the nature of influence of exchange rate changes on domestic prices. To this end, this thesis examines the magnitude and speed of exchange rate pass-through (ERPT) to import, producer and consumer prices in South Africa. Furthermore, it explores whether the direction and size of changes in the exchange rate have different pass-through effects on import prices, that is, whether the exchange rate pass-through is symmetric or asymmetric. The paper uses monthly data covering the period January 1980 to December 2005. In investigating ERPT, two main stages are identified. The initial stage is the transmission of fluctuations in the exchange rate to import prices, while the second-stage entails the pass-through of changes in import prices to producer and consumer prices. The first stage is estimated using the Johansen (1991) and (1995) cointegration techniques and a vector error correction model (VECM). The second stage pass-through is determined by estimating impulse response and variance decomposition functions, as well as conducting block exogeneity Wald tests. The study follows Wickremasinghe and Silvapulle’s (2004) approach in estimating pass-through asymmetry with respect to appreciations and depreciations. In addition, the thesis adapts the analytical framework of Wickremasinghe and Silvapulle (2004) to investigate the pass-through of large and small changes in the exchange rate to import prices. The results suggest that ERPT in South Africa is incomplete but relatively high. Furthermore, ERPT is found to be higher in periods of rand depreciation than appreciation which supports the binding quantity constraint theory. There is also some evidence that pass-through is higher in periods of small changes than large changes in the exchange rate, which supports the menu cost theory when invoices are denominated in the exporters’ currency.
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  • Date Issued: 2008

An empirical analysis of the long-run comovement, dynamic returns linkages and volatility transmission between the world major and the South African stock markets

  • Authors: Chinzara, Zivanemoyo
  • Date: 2008
  • Subjects: Stock exchanges -- South Africa , Globalization -- Economic aspects -- South Africa , International economic relations , Portfolio management -- South Africa , Monetary policy -- South Africa
  • Language: English
  • Type: Thesis , Masters , MCom
  • Identifier: vital:970 , http://hdl.handle.net/10962/d1002704 , Stock exchanges -- South Africa , Globalization -- Economic aspects -- South Africa , International economic relations , Portfolio management -- South Africa , Monetary policy -- South Africa
  • Description: The international linkages of stock markets have important implications for cost of capital and portfolio diversification. Recent trends in globalization, financial liberalization and financial innovation raises questions with regard to whether African stock markets are being integrated into world equity markets. This study examines the extent to which the South African (SA) equity market is integrated into the world equity markets using daily data for the period 1995-2007. The study is divided into three main parts, each looking at the different ways in which integration can be considered. The first investigates whether there is long run comovement between the SA and the major global equity markets. Both bivariate and multivariate Johansen (1988) and Johansen and Juselius (1990) cointegration approaches were utilised. Vector Error Correction Models (VECMs) are then estimated for portfolios which show evidence of cointegration. The second part analyses returns linkages using the Vector Autoregressive (VAR), block exogeneity, impulse response and variance decomposition. The third part examines the behaviour of volatility and volatility linkages among the stock markets. Firstly volatility is analysed using the GARCH, EGARCH and GJR GARCH. Simultaneously, the hypothesis that investors receive a premium for investing in more risky stock markets is explored using the GARCH-in mean. The long term trend of volatility is also examined. Volatility linkages are then analysed using the VAR, block exogeneity, impulse response and variance decomposition. The first part established that no bivariate cointegration exists between the SA and any of the stock markets being studied, implying that pairwise portfolio diversification is potentially worthwhile for SA portfolio managers. However, multivariate cointegration exists for some portfolios, with the US, UK, Germany and SA showing evidence of error correction for some of these portfolios. Findings on return linkages is that there are significant returns linkages among the markets, with the US and SA being the most exogenous and most endogenous respectively. Findings regarding volatility are that the volatility in all the markets is inherently asymmetric and that except for the US there is no risk premium in any of the markets. The long term trend of volatility in all the stock markets was found to be relatively stable. The final finding was that significant volatility linkages exist among the markets, with the US being the most exogenous and SA and China showing evidence of bidirectional linkages. Overall, except for volatility linkages, the integration of SA into the global equity markets is still quite low. Thus, both SA and international investors can capitalise on this portfolio diversification potential. On the other hand, policy makers should capitalise on this and make policies that will attract the much needed foreign investors.
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  • Date Issued: 2008

The term structure of interest rates and economic activity in South Africa

  • Authors: Shelile, Teboho
  • Date: 2007
  • Subjects: Finance -- South Africa , Monetary policy -- South Africa , Interest rates -- South Africa , Economic development -- South Africa , South Africa -- Economic conditions -- 21st century
  • Language: English
  • Type: Thesis , Masters , MCom
  • Identifier: vital:994 , http://hdl.handle.net/10962/d1002729 , Finance -- South Africa , Monetary policy -- South Africa , Interest rates -- South Africa , Economic development -- South Africa , South Africa -- Economic conditions -- 21st century
  • Description: Many research papers have documented the positive relationship between the slope of the yield curve and future real economic activity in different countries and different time periods. One explanation of this link is based on monetary policy. The forecasting ability of the term spread on economic growth is based on the fact that interest rates reflect the expectations of investors about the future economic situation when deciding about their plans for consumption and investment. This thesis examined the predictive ability of the term structure of interest rates on economic activity, and the effects of different monetary policy regimes on the predictive ability of the term spread. The South African experience offers a unique opportunity to examine this issue, as the country has experienced numerous monetary policy frameworks since the 1970s. The study employed the Generalised Method Moments technique, since it is considered to be more efficient than Ordinary Least Squares. Results presented in this thesis established that the term structure successfully predicted real economic activity during the entire research period with the exception of the last sub-period (2000-2004) when using the multivariate model. In the periods of financial market liberalisation and interest rates deregulation the term structure was found to be a better predictor of economic activity in South Africa. These findings emphasise the importance of considering the prevailing economic environment in testing the term structure theory.
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  • Date Issued: 2007

Monetary policy transmission in South Africa: the prime rate-demand for credit phase

  • Authors: Lehobo, Limakatso
  • Date: 2006
  • Subjects: South African Reserve Bank , Monetary policy -- South Africa , Banks and banking -- South Africa , Bank loans -- South Africa , Financial institutions -- South Africa , Finance -- South Africa
  • Language: English
  • Type: Thesis , Masters , MCom
  • Identifier: vital:1128 , http://hdl.handle.net/10962/d1020850
  • Description: A voluminous literature attempts to explain the various channels of the monetary policy transmission mechanism through which central banks ultimately achieve price stability. However, most research focuses on interest rate pass-through and the demand for money phase, while there is limited research on the demand for credit. This study endeavours to contribute to the understanding of this neglected phase of monetary policy transmission by exploring the response of the real demand for bank credit by the private sector to changes in the real prime rate from 1990:1 to 2004:4 in South Africa. Firstly, the behaviour of the real prime rate in relation to the repo rate is explored using graphical analysis. The study observes that an increase in the repo rate causes an increase in the real prime rate, such that there is always a margin of three or four percentage points between the two rates. Secondly, using secondary data, the Johansen methodology is used to determine the relationship between the demand for bank credit and its determinants (GDP, inflation, real prime rate and real yield on government bonds). Two co-integrating relationships are found. The Gaussian errors from one co-integrating vector are used to model the Vector Error Correction Model, which provides the short-run dynamics and the long-run results, through the use of Eviews 5 software. The results of the study show that while all other variables are negatively related to the demand for bank credit in the long-run, GDP has a positive influence. In the short-run, yield on government bonds and inflation coefficients depict a positive association, while the coefficients of real prime rate and GDP are negative. The error correction coefficient is -0.32, which implies that a 32% adjustment to equilibrium happens in the demand for bank credit in a quarter and that the complete adjustment takes about three quarters to complete. Thirdly, the generalised impulse responses results indicate that the impact on the real prime rate affects the demand for bank credit from the first quarter. The study concludes that the real prime rate has a negative impact on the demand for credit both in the short-run and long-run.
  • Full Text:
  • Date Issued: 2006
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