Monetary policy

This paper builds a small open economy model for a net commodity exporter to consider financial frictions and monetary policies in order to investigate the main determinants of business cycles. Since we make a distinction to the access of financial markets between the commodity and non-commodity sectors, we notice that as usual, a commodity price shock benefits the competitiveness of the economy and its borrowing terms.

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.

This paper investigates the “cost of credit effect” of monetary policy on household consumption of final goods and services in South Africa, testing the hypotheses of the Keynesian interest rate channel of monetary policy transmission. We focus on three periods; post transition from apartheid, during inflation targeting and during the global financial crisis. Quarterly data from 1994Q1 to 2012Q4, constant parameter vector autoregressive techniques (VAR) by Sims (1980) and time varying parameter VAR by Primicieri (1995) are used in this study.

I study the implications of learning by doing in production for optimal monetary policy using a basic New Keynesian model. Learning-by-doing is modeled as a stock of skills that accumulates based on past employment. The presence of this learning-by-doing externality breaks the ’divine coincidence’ result, that by stabilising inflation the output gap will automatically be closed, for a variety of shocks that are important in explaining the buseiness cycle. In this context, the policy maker must consider the impact on future productivity of any trade-off between output and inflation today.

This paper analyses the relationship between financial stress indicator variables and monetary policy in South Africa with emphasis on how robust these variables are related to the monetary policy interest rate. The financial stress indicator variables comprise a set of variables from the main segments of the South African financial market that include the bond and equity securities markets, the commodities market and the foreign exchange rate market.

Estimates of the output gap are an important component of policy-makers’ toolkits. Both the theory underlying monetary policy analysis and the empirical models employed by central banks suggest that the output gap is a key variable explaining inflation. In this view, the estimate of the output gap provides not only an indication of how well the economy is operating relative to its potential, it also signals whether inflation is likely to increase or decrease in the future. The reliability of estimates of the output gap is therefore extremely important for policy making.

In 1967 Milton Friedman delivered “The Role of Monetary Policy’ as his presidential address to the American Economic Association (AEA). In its published version – Friedman (1968) – it has become, arguably, the most influential paper in modern monetary economics and was recently included in the AEA’s list of the twenty most influential papers published in the first century of the American Economic Review. But the influence of Friedman’s address is based on an interpretation that seriously distorts the content of his main argument.