Fiscal risks and their impact on banks’ capital buffers in South Africa
South Africa’s fiscal balances have deteriorated significantly over the last decade, while the economy has been recording disappointing economic growth rates even prior to the COVID-19 crisis. In this paper, we estimate a series of equations using the Arellano and Bond (1991) estimator to test how sovereign risk premia affect capital buffers, while controlling for […]
Late colonial antecedents of modern democracy
Some of the most contested questions in political science and political economy revolve around the conditions under which democratization is likely to happen and when democracy becomes a stable institutional choice. This paper revisits the particular claim in the democratization literature that the type of colonization, and particularly the degree to which Europeans settled in […]
The effectiveness of counter-cyclical loan-to-value regulations: generic versus sector-specific rules
This paper considers the implications of the counter-cyclical loan-to-value (CcLTV) regulation in a setting where different types of borrowers from distinct sectors of the credit market co-exist. To identify the optimal policy design, we consider two macro-prudential policy regimes, nanely generic and sector-specfi c, and compare their effectiveness in enhancing fi nancial and macroeconomic stability. […]
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 […]
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 […]
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 […]
Can bank capital adequacy changes amplify the business cycle in South Africa?
The phenomenon of bank regulation procyclicality requires very careful examination for both regulatory bodies and supervisory authorities given the salient role of the financial sector as an engine of growth to the real sector. Consequently, policies and regulations should be formulated in a way that will not hinder the financial deepening of the markets. Regulatory […]
Financial Reforms and the Finance –Growth Relationship in the Southern African Development Community (SADC) Region
The role of finance in economic growth in SADC has been downplayed in most literature and policy initiatives given that financial sectors of SADC countries are regarded as less developed with the exception of South Africa. This notwithstanding, the role of finance in development of the region is gradually regaining importance amid a gradual shift […]
Financial Reforms and the Finance-Growth Relationship in the Southern African Development Community (SADC) Region
The role of finance in economic growth in SADC has been downplayed in most literature and policy initiatives given that financial sectors of SADC countries are regarded as less developed with the exception of South Africa. This notwithstanding, the role of finance in development of the region is gradually regaining importance amid a gradual shift […]
An evaluation of the cost and revenue efficiency of the banking sector in Zimbabwe
The study was meant to evaluate the cost and revenue efficiency of the Zimbabwean banking sector during the period 2009-2014. The study employed the Data Envelopment Analysis and the Tobit Regression methods. The estimation of cost and revenue efficiency shows that revenue and cost efficiency increased during the period 2009-2012. This coincided with high positive […]
Financial Innovation and Economic Growth in the SADC
The study empirically establishes the causal relationship between financial innovation and economic growth in SADC. Using an Autoregressive Distributed Lag (ARDL) Model, estimated by Pooled Mean Group and Dynamic Fixed Effects, the study finds that financial innovation has a positive relationship to economic growth in long run for SADC. The long run estimations, however, show […]
Financial Reforms and the Finance – Growth Relationship in the Southern African Development Community (SADC)
This study seeks to establish the casual relationship between financial development and economic growth in the SADC region, factoring-in the role of financial reforms. Utilising Generalised Methods of Moments (GMM) and Panel Fixed Effects estimations, the study established that financial development has a negative effect on growth in SADC. Underdeveloped financial systems, structure and distribution […]
The effectiveness of countercyclical capital requirements and contingent convertible capital: a dual approach to macroeconomic stability
This paper studies the effectiveness of countercyclical capital requirements and contingent convertible capital (CoCos) in limiting financial instability, and its associated influence on the real economy. To do this, I augment both features into a standard real business cycle framework with an equity market and a banking sector. The model is calibrated to real U.S. data […]
Do Capital Requirements Affect Cost of Intermediation? Evidence from a Panel of South African Banks
Since the 2007 sub-prime financial crisis, world bank capital ratios have increased. In this paper, we investigate the impact of increased bank capital requirements introduced under the Basel Accord framework on the costs of intermediation. We attempt to answer this central question by running panel regressions using 2001 – 2012 annual bank-level data for ten […]
International financial architecture, macroeconomic volatility and institutions: South Africa experience
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 […]
Monetary policy and commodity terms of trade shocks in emerging market economies
Commodity terms of trade shocks have continued to drive macroeconomic uctuations in most emerging market economies. The volatility and persistence of these shocks have posed great challenges for monetary policy. This study employs a New Keynesian Dynamic Stochastic General Equilibrium (DSGE) model to evaluate the optimal monetary policy responses to commodity terms of trade shocks […]
Terms of Trade Shocks and Inflation Targeting in Emerging Market Economies
Emerging market economies (EMEs) have persistently experienced different waves of commodity terms of trade disturbances, generating macroeconomic instabilities. The adoption of inflation targeting (IT) by many emerging market economies has raised the questions about its relative suitability in dealing with these shocks compared with other regimes. This paper tests the robustness of inflation targeting compared […]
Do Monetary, Fiscal and Financial Institutions Really Matter for Inflation Targeting in Emerging Market Economies?
Most emerging market economies (EMEs) which have implemented inflation targeting (IT) have continued to experience large, frequent and sometimes persistent inflation target misses. At the same time these countries had reformed their institutional structures when implementing IT. In this paper we empirically study the importance of central bank independence, fiscal discipline and financial sector development […]
Bank concentration and the interest rate pass-through in Sub-Saharan African countries
This study investigates the link between bank concentration and interest rate pass-through (IRPT) in four sub-Saharan countries. It also analyses whether there is asymmetry in IRPT and whether such asymmetry is related to changes in bank concentration. By applying a number of econometric methods including Asymmetric Error Correction Models, Mean Adjustment Lag (MAL) models and […]
Business Cycle and Bank Capital Regulation: Basel II Procyclicality
This paper studies the impacts of bank capital regulation on business cycle fluctuations. To do so, we adopt the Bernanke et al. (1999) “financial accelerator” model (BGG), to which we augment a banking sector to study the procyclical nature of Basel II claimed in the literature. We first study the impacts of a negative shock […]
Regulation and Banking Stability: A Survey of Empirical Studies
This paper brings together and adds structure to the empirical literature on the link between banking regulation and banking system stability. In addition to clarifying the theoretical underpinnings for studying banking regulation, it points to several directions for future empirical research, necessary to fill the gaps in our understanding of the link between banking regulation […]
The effectiveness of counter-cyclical loan-to-value regulations: generic versus sector-specific rules
This paper considers the implication of the counter-cyclical loan-to-value (CcLTV) regulation in a setting where different types of borrowers from distinct sectors of the credit market co-exist. To identify the optimal policy design, we consider two macro-prudential policy regimes, generic and sector-specific, and compare their effectiveness in enhancing financial and macroeconomic stability. We find that […]
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