This paper investigates the impact of the money supply in different states of inflation and economic growth in South Africa from 1990 to 2021. The term “states” defines periods of low and high rates of economic variables of interest. Markov-switching dynamic regression (MSDRM) and time-varying parameter structural vector autoregression (TVP-VAR) are used in this paper. The contribution of this paper is not only based on the long run but also on the examination of the impact of the money supply in different states of inflation and economic growth. Moreover, the use of shock accounts for time-varying elasticity. It is found that there is a 0.70% decrease in the gross domestic product for a 1% increase in money supply in state 1, while in state 2, the money supply was insignificant. The money supply had a negative and a positive impact on inflation in states 1 and 2, with rates of 0.05% and 0.35% in the respective states. The money supply had a high multiplier effect on gross domestic product and inflation. More than 5 years were spent in each state for both gross domestic product and inflation, while the transition probability of moving and returning to each state is significant. The trade-off of using the money supply for economic growth and inflation is evident in South Africa. It is recommended that the state of the economy be considered when using the money supply in an effort to stimulate economic growth or stabilise inflation.

This paper investigates the impact of inflation in different states of unemployment: evidence with the Phillips curve in South Africa. The contribution of this paper is to examine the impact of inflation on different states of unemployment in South Africa. The Paper employs Markov-switching dynamic regression and data from 2008 to 2022. It was found that there are 2 states of unemployment mean rates of 25.55% and 33.59%, expected to run for 67 and 7 quarters, respectively. There is a 98.51% and 86.99% chance of a move and then returning to the same state, respectively. In states 1 and 2, a 1% increase in inflation results in a 2.61% increase and a 0.06% decrease in unemployment, respectively. There are times when the Phillips curve rationale is not holding. The government needs to increase the channels of employment opportunities. There is a need to re-look at the trade-offs between inflation and unemployment in the economy.

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This paper investigates the effects of macroeconomic uncertainty on economic growth in the presence of fiscal consolidation in South Africa. Markov-switching dynamic regression (MSDR) and time-varying parameter vector autoregression (TVP-VAR) were performed using time series data from 1994 to 2022. Less attention has been given directly to the investigation of macroeconomic uncertainty in different regimes of economic growth in South Africa. Three states are found for economic growth, with mean growth rates of negative 6.29% and positive 3.90% and 1.47%, respectively. Macroeconomic uncertainty was found to have a negative impact of 6.72%, 4.38%, and 3.08% in states 1 to 3, respectively. Fiscal consolidation provided an accommodative policy, as it reduced the negative impact of macroeconomic uncertainty by 3.17%, 1.80%, and 0.92% in states 1 to 3, respectively. However, fiscal consolidation does not completely reduce the negative impact of macroeconomic uncertainty. The transition probabilities of economic growth moving and returning to the same states are 29.46%, 34.07%, and 58.02%, in each state, respectively. The time-varying impulse response functions showed that the shock of macroeconomic uncertainty harms economic growth. Nevertheless, the multiplier effect is not large; however, the economy operates below equilibrium and does not restore equilibrium after the effect of macroeconomic uncertainty. This reflects that it takes time for macroeconomic uncertainty to filter out of the South African economy. It is recommended that fiscal consolidation be considered as an accommodative fiscal policy to reduce macroeconomic uncertainty but not as a main policy for economic growth.

This paper investigates the impact of the time-varying elasticity of the cyclically adjusted primary balance (CAPB) and fiscal consolidation on government debt. The time-varying parameter structural vector autoregression (TVP-VAR) model is used on a time series of data from 1979 to 2022. The contribution of this paper is on the understanding of the impact of fiscal consolidation on domestic government debt and the need to use time-varying elasticity when calculating the cyclical adjusted primary balance to provide a more accurate representation of discretionary actions taken by fiscal authorities. It is found that there is more variation in the CAPB with time-varying elasticity than with constant elasticity. Constant elasticity is not effective in capturing fiscal consolidation episodes, and time-varying elasticity is a better alternative. There is evidence that fiscal consolidation increases domestic government debt. The shocks of fiscal consolidation through government expenditure cuts reduce domestic government debt in the long run, while taxes increase domestic government debt. It is recommended that fiscal authorities use fiscal consolidation to reduce government expenditure that is related to inefficient expenditure. In the event of government expenditure, this expenditure needs to be in productive sectors of the economy that will bring about an increase in revenue rather than an increase in the tax rate. Given the result, a tax increase should be something that fiscal authorities are not using in the effort to stimulate economic growth or reduce domestic government debt.