Policy Paper 08

Through 43 years of history, this study identifies proximate causes of aggregate volatility in South Africa, the obstacles to managing those volatility risks, and suggests how the country can harness globalization to strengthen financial institutions in order to manage risks better. Macroeconomic volatility is said to influence growth in many ways including its more obvious effect on investment, through affecting the level of uncertainty. Nonetheless, one can argue that not all types of macroeconomic volatility are on balance inimical. In fact, macroeconomic volatility can “manufacture a crisis” that leads to fruitful reforms. However, this aspect of volatility would be viewed as an exception because in general, volatility dislocates existing policies and impairs institutions, thereby rendering an economy more fragile.