South Africa’s real business cycles: The Cycle is the trend

This paper tests the ‘cycle is the trend’ hypothesis. We investigate how far permanent and transitory productivity shocks can account for the dynamics observed in the South African business cycle over the period 1946{2014. By estimating a standard small open economy real business cycle model and its financial frictions augmented counterpart, we show that permanent productivity shocks are more […]

The impact of monetary policy on household consumption in South Africa. Evidence from Vector Autoregressive Techniques

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 […]

Nowcasting Real GDP growth in South Africa

This paper uses nowcasting to forecast real GDP growth in South Africa from 2010Q1 to 2014Q3 in real time. Such an approach exploits the ‡ow of high-frequency information underlying the state of the economy. It overcomes one of the major challenges faced by forecasters, policymakers, and economic agents – having a clear view of the […]

Second Annual Econometrics Workshop: Bayesian Statistics in Econometrics

Invited Speaker: Professor Donald B. Rubin (Harvard) At the first ERSA Econometrics Workshop, one of the key areas identified for strengthening within Southern African econometric research was that of Bayesian statistics. In essence, the Bayesian paradigm is concerned with updating prior model beliefs or assumptions with observed data, to generate a posterior view of the […]

Bayesian learning with multiple priors and non-vanishing ambiguity

The existing models of Bayesian learning with multiple priors by Marinacci (2002) and by Epstein and Schneider (2007) formalize the intuitive notion that ambiguity should vanish through statistical learning in an one-urn environment. Moreover, the multiple priors decision maker of these models will eventually learn the ‘’truth’’. To accommodate non vanishing violations of Savage’s (1954) […]

Biased Bayesian Learning with an Application to the Risk-Free Rate Puzzle

Based on the axiomatic framework of Choquet decision theory, we develop a closed-form model of Bayesian learning with ambiguous beliefs about the mean of a normal distribution. In contrast to rational models of Bayesian learning the resulting Choquet Bayesian estimator results in a long-run bias that reflects the agent’s ambiguity attitudes. By calibrating the standard […]

Important Channels of Transmission Monetary Policy Shock in South Africa

This paper investigates the di¤erent channels of transmission of monetary policy shock in South Africa in a data-rich environment. The analysis contains 165 quarterly variables observed from 1990Q1 to 2012Q2. We use a Large Bayesian Vector Autoregressive model, which can easily accommodate a large cross-section of variables without running out of degree of freedom. The […]

The Equity Price Channel in a New-Keynesian DSGE Model with Financial Frictions and Banking

This paper studies the role of the equity price channel in business cycle fluctuations, and highlights its systemic risk across all sectors of the economy. We develop a canonical New-Keynesian dynamic stochastic general equilibrium model with a tractable role for the equity market in banking, entrepreneur and household economic interactions. The model is estimated with […]

The emergence of “fifty-fifty” probability judgements in a conditional Savage world

This paper models the empirical phenomenon of persistent fifty-fifty probability judgements within a dynamic non-additive Savage framework. To this purpose I construct a model of Bayesian learning such that an agent’s probability judgement is characterized as the solution to a Choquet expected utility maximization problem with respect to a conditional neo-additive capacity. Only for the […]

Will the SARB always succeed in fighting inflation with contractionary policy?

The conventional view is that a monetary policy shock has both supply-side and demand-side effects, at least in the short run. Barth and Ramey (2001) show that the supply-side effect of a monetary policy shock may be greater than the demand-side effect. We argue that it is crucial for monetary authorities to understand whether an […]

A Large Factor Model for Forecasting Macroeconomic Variables in South Africa

This paper uses large Factor Models (FMs) which accommodates a large cross-section of macroeconomic time series for forecasting per capita growth rate, inflation, and the nominal short-term interest rate for the South African economy. The FMs used in this study contains 267 quarterly series observed over the period of 1980Q1-2006Q4. The results, based on the […]

Adaptive Bayesian Analysis for Binomial Proportions

We consider the problem of statistical inference of binomial proportions for non-matched, correlated samples, under the Bayesian framework. Such inference can arise when the same group is observed a different number of times on two or more inference occasions, with the aim of testing the proportion of some trait. These scenarios can occur when we […]

Asset pricing in a Lucas ‘fruit-tree’ economy with non-additive beliefs

We study a Lucas (1978) “fruit-tree” economy under the assumption that agents are Choquet expected utility (CEU) rather than standard expected utility (EU) decision makers. The agents’ nonadditive beliefs about the economy’s stochastic dividend payment process may thus express ambiguity attitudes and accommodate violations of Savage’s sure-thing principle as elicited by Ellsberg (1961). As our […]

A parsimonious model of subjective life expectancy

This paper develops a theoretical model for the formation of subjective beliefs on individual survival expectations. Data from the Health and Retirement Study (HRS) indicate that, on average, young respondents underestimate their true survival probability whereas old respondents overestimate their survival probability. Such subjective beliefs violate the rational expectations paradigm and are also not in […]