E43

Interest Rates: Determination, Term Structure, and Effects

The monetary policy of the South African Reserve Bank: stance, communication and credibility

This paper analyses the evolution of the monetary policy stance, communication and credibility of the South African Reserve Bank (SARB) since 2000, when it adopted a flexible Inflation Targeting (IT) regime to facilitate the achievement of its price stability mandate. Empirical results indicate that the stance became accommodative after the global financial crisis of 2009, with a tendency of the implicit inflation target to increase, while after 2014 it turned tighter and the implicit target started declining.

Policy regime changes and central bank prefernces

This paper establishes whether central bank preferences are related to governors' preferences when there is a change in policy regime. We use a time-varying parameter approach that allows the policy preferences to vary over the sample period. The results show that the policy parameters exhibit signicant changes and that the South African Reserve Bank places more weight on output relative to inflation over the period 2000 and 2007. The dynamic responses of output and inflation under different central bank governors show different outcomes.

Flow specific capital controls for emerging markets

This paper investigates the impact of capital controls on business cycle fluctuations and welfare. To perform this analysis, we deploy an asymmetric two country model that is subject to negative foreign interest rate shocks. The results show that both an inflow and outflow capital control are able to attenuate capital flow dynamics, but each control bears different implications for macroeconomic outcomes. Whilst the outflow capital control is associated with shock attenuation benefits, the inflow capital control is shown to amplify the impact of shocks.

Effects of South African Monetary Policy Implementation on the CMA: A Panel Vector Autoregression Approach

The paper investigates the effects of South African monetary policy implementation on selected macroeconomic variables in the rest of the Common Monetary Area (CMA) looking specifically at the response of a shock to South African key interest rate (repo rate) on macroeconomic variables such as the regional lending rates, interest rate spread, private sector credit, money supply, inflation and economic growth in the rest of the CMA countries. The analysis is conducted using impulse-response functions derived from Panel Vector Autoregression (PVAR) methodology.

Credit market heterogeneity, balance sheet (in) dependence, financial shocks

This paper presents a real business cycle model with financial frictions and two credit markets to investigate the qualitative and quantitative relevance of credit market heterogeneity. To address this line of inquiry we contrast the transmission of financial shocks in an economy where loans are the only form of credit to one in which both loans and bonds exist.

Qualitative Guidance and Predictability of Monetary Policy in South Africa

With the adoption of the in‡ation targeting (IT) regime in 2000, the South African Reserve Bank (SARB) became independent. With the independence of monetary policy comes accountability to the public at large, which in turn leads to transparency in the conduct of monetary policy. The SARB has come a long way in its communication strategy.

On the Term Structure of South African Interest Rates: Cointegration and Threshold Adjustment

This paper explores the correlations of the short- and long-term interest rate series through time in South Africa. Two time series techniques are utilized: the Kapetanios et al. (2003) nonlinear STAR unit root test and the asymmetric cointegration with threshold adjustment test of Enders and Siklos (2001). We find the interest rate series (i.e. the SARB policy rate and the yield on long-term government bonds) to be cointegrated with fairly weak threshold adjustment.

Credit spread variability in U.S. business cycles: The Great Moderation versus the Great Recession

This paper establishes the prevailing financial factors that influence credit spread variability, and its impact on the U.S. business cycle over the Great Moderation and Great Recession periods. To do so, we develop a dynamic general equilibrium framework with a central role of financial intermediation and equity assets. Over the Great Moderation and Great Recession periods, we find an important role for bank market power (sticky rate adjustments and loan rate markups) on credit spread variability in the U.S. business cycle.

A Note on the (continued) Ability of the Yield Curve to Forecast Economic Downturns in South Africa

In 2002/03 the yield spread falsely signalled a downswing that never materialised. This paper provides two reasons for this false signal. Firstly, while the Reserve Bank never actually officially declared the start of a downswing, by other important measures a downswing did actually occur. It is to this slowing in economic activity at that time that the yield curve pointed. Secondly, short-term interest rates in 2003 were higher than they should have been because of a mistake made in measuring consumer price inflation.

A Portrait of Informal Sector Credit and Interest Rates in Malawi: Interpolated Monthly Time Series

Although informal finance forms a large part of their financial sector, nearly all low income countries exclude informal transactions in official monetary data. Usually, informal finance data are nonexistent and occasionally, they are available only from surveys that often occur at irregular intervals and mostly with incomparable data. Using two survey datasets, indigenous knowledge, and elements of Friedman’s data interpolation technique, this study constructs monthly time series of informal credit and interest rates for Malawi.

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