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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. The estimates are conducted using annual data for a panel of four CMA countries for the period 1980 – 2012. The results show that a positive shock to South African repo rate significantly affects lending rates, inflation and economic growth in the entire CMA countries. South African repo rate has more impact on lending rates in the entire CMA. This is then followed by the impact on inflation and then economic growth.

Working paper 643
1 October 2016
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