E58

Central Banks and Their Policies

Is Basel III counter-cyclical: The case of South Africa?

This paper develops a dynamic general equilibrium model with banking and a macro-prudential authority, and studies the extent to which the Basel III bank capital regulation promotes financial and macroeconomic stability in the context of South African economy. The decomposition analysis of the transition from Basel II to Basel III suggests that it is the counter-cyclical capital buffer that effectively mitigates the pro-cyclicality of its predecessor, while the impact of the conservative buffer is marginal.

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.

Macroprudential policy and foreign interest rate shocks: A comparison of different instruments and regulatory regimes

This paper presents a generic small open economy real business cycle model with banking and foreign borrowing. We incorporate capital requirements, reserve requirements, and loan-to-value (LTV) regulation into this framework, and subject the model to a positive foreign interest rate shock that raises the country risk premium and reduces the supply of foreign funds. The results show that these macroprudential instruments can attenuate the impact of such a shock, and that this attenuation property increases with the strictness of the regulatory regime.

Changes in the Liquidity Effect Over Time: Evidence from Four Monetary Policy Regimes

This paper employs a time-varying parameter vector autoregressive (TVP-VAR) model to establish the nature of the relationship between central bank liabilities and the overnight policy rate. Four countries with different monetary policy regimes were considered. It was found that a clear negative relationship between these variables exists only in the case of one regime, namely the reserve regime. This result indicates that the introduction of new operational frameworks for central banks have challenged the traditional model of monetary policy implementation.

The impact of Monetary Policy Announcements and Political Events on the Exchange Rate: The Case of South Africa

Since 2000 the South African rand has been among the most volatile emerging market currencies, occasionally experiencing sharp depreciations. These sharp fluctuations in the value of the currency cannot be adequately explained by models of flow-supply and flow-demand of currency or by movements in fundamental factors, yet few studies have employed an asset pricing approach to explain exchange rate variability in emerging markets.

Welfare analysis of bank capital requirements with endogenous default

This paper presents a tractable framework with endogenous default and evaluates the welfare implication of bank capital requirements. We analyze the response of social welfare to a negative technology shock under different capital requirement regimes with and without default. We show that including default as an additional indicator of capital requirements is welfare improving. When implementing capital requirements, a more aggressive reaction to the default rate is more effective for weakening the negative effect of the shock on welfare.

The welfare cost of macro-prudential policy in a two-country DSGE model

This paper builds a two-country DSGE model with financial frictions and investigates the welfare cost of macro-prudential policy and its impact on financial stability. The two countries in question are the U.S. and South Africa. The results show that macro-prudential policy results in a welfare trade-off between patient and impatient households.

Do monetary policy announcements affect foreign exchange returns and volatility? Some evidence from high-frequency intra-day South African data.

This paper examines the temporal effect of domestic monetary policy surprises on both the levels and volatility of the South African rand/United States dollar exchange rate. The analysis in this ‘event study’ proceeds using intra-day minute-by-minute exchange rate data, repo rate data from the South African Reserve Bank’s scheduled monetary policy announcements, and Bloomberg market consensus repo rate forecasts.

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