IDENTIFYING THE INTERDEPENDENCE BETWEEN SOUTH AFRICAâ€™S MONETARY POLICY AND THE STOCK MARKET

Muroyiwa, Brian; Ezeoha, Abel Ebeh; Mushunje, Abbyssinia

doi:10.21506/j.ponte.2017.9.16

Cited by 5 publications

(9 citation statements)

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“…Bonga-Bonga (2011) assessed the dynamic responses of stock prices on inflation, economic activity, and monetary policy using a structural vector error-correction model and concluded that there is a positive relationship between equity prices and interest rates in South Africa. Some similar conclusions were also drawn by Muroyiwa (2011) based on an Structural Vector Auto Regression (SVAR) where shocks were identified using a combination of both short-run and long-run restrictions. Basistha and Kurov (2008) look at US equity market reactions to the surprise component from Federal Open Market Committee announcements and found that US equity market reactions are more pronounced when the US economy is in a recession.…”

Section: Introductionsupporting

confidence: 64%

Does CRR and Repo Change Affect Corporate Output?

Ahmad

2015

Jindal Journal of Business Research

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Bank financing is an imperative component of financing the companies. When banks are short on liquidity, this financing activity also tends to go slow. Banks liquidity is dependent upon the policy enforced by the central bank which uses cash reserve ratio (CRR) and Repo rates very frequently to this effect. Since bank credit is dependent on its liquidity position, any change in key policy rates will affect the corporate funding. This is the basic hypothesis which is being tested in this research. The objective of the article is to understand the effect of two important policy rates, Repo and CRR, on corporate output through aggregate sales of the listed companies. The objective was achieved by building a VAR system and doing the required analysis using quarterly data for the time period 2000–2015. One of the important findings was that lag effect is very critical to understand this relationship between policy rates and corporate output and while formulating policies, this should be an important variable to be considered.

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Section: Introductionsupporting

confidence: 64%

Does CRR and Repo Change Affect Corporate Output?

Ahmad

2015

Jindal Journal of Business Research

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“…We rely on estimations of DSGE models for South Africa of Steinbach et al (2009), Alpanda et al (2010a,b, 2011, and Gupta and Steinbach (2013). The prior distributions for the Calvo lottery and for the persistence parameters, for example, are also used in Alpanda et al (2011).…”

Section: Prior and Posterior Distributions And Properties Of The Estimentioning

confidence: 99%

“…Notable exceptions are Moolman (2004), Moolman and Jordaan (2005), Odhiambo (2010), Bonga-Bonga (2011, 2012, and Muroyiwa (2011). All these studies rely on variations of vector autoregressive (VAR) or vector error-correction (VEC) frameworks, which are primarily a-theoretical in nature.…”

Section: Introductionmentioning

confidence: 99%

“…Besides the fact that stock market spillovers could be inflationary if they significantly affect aggregate demand through consumption, the recent financial crisis has rekindled the debate on whether central banks should conduct monetary policy in a more active manner to prevent the development of bubbles that can be costly in terms of future output and financial stability (André et al (2012)). To the best of our knowledge, there are only three papers, that investigate the behaviour of the interest rate in response to stock price movements in South Africa, namely that of Bonga-Bonga (2011), Muroyiwa (2011) and Aye et al (forthcoming). These studies suggest that the South African Reserve Bank (SARB) responds significantly to stock price movements.…”

Section: Introductionmentioning

confidence: 99%

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Stock price dynamics and the business cycle in an estimated DSGE model for South Africa

Paetz

Gupta

2016

Journal of International Financial Markets, Institutions and Mo

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This paper develops and estimates an open economy dynamic stochastic general equilibrium model of South Africa. We devote special attention to the impact of stock price wealth effects on output and the interest rate. For this reason we adopt a perpetual youth approach, which allows for a limited decision horizon. We estimate the model using Bayesian techniques and find that (i) about 9 percent of the volatility in production can be explained by financial shocks, and (ii) the SARB does not and should not react on stock price disturbances. Moreover, stock prices seem to be unaffected by shocks from the real economy.

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“…Furthermore, the studies using an FCI, which is a composite of four or five asset-related variables, do not specifically indicate the role of stock prices in the monetary policy reaction functions. To the best of our knowledge, there are only two papers that specifically looks at the behaviour of the interest rate in response to stock price movements in South Africa: Bonga-Bonga (2011) and Muroyiwa (2011). 4 Bonga-Bonga (2011) assessed the dynamic responses of stock prices on inflation, economic activity and monetary policy using a structural vector error-correction model, and concluded that there is a positive relationship between equity prices and interest rates in South Africa.…”

Section: Introductionmentioning

confidence: 99%

Do Stock Prices Impact Consumption and Interest Rate in South Africa? Evidence from a Time-varying Vector Autoregressive Model

Aye

Gupta

Modise

2015

Journal of Emerging Market Finance

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This paper investigates the existence of spillovers from stock prices onto consumption and the interest rate for South Africa using a time-varying vector autoregressive (TVP-VAR) model with stochastic volatility. In this regard, we estimate a three-variable TVP-VAR model comprising of real consumption growth rate, the nominal three-months Treasury bill rate and the growth rate of real stock prices. We find that the impact of a real stock price shocks on consumption is in general positive, with large and significant effects observed at the one-quarter ahead horizon. However, there is also evidence of significant negative spillovers from the stock market to consumption during the financial crisis, at both short and long-horizons. Monetary policy response to stock price shocks has been persistent, and strong especially post-the financial liberalization in 1985, but became weaker during the financial crisis. Overall, we provide evidence of significant time-varying spillovers on consumption and interest rate from the stock market.

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IDENTIFYING THE INTERDEPENDENCE BETWEEN SOUTH AFRICAâ€™S MONETARY POLICY AND THE STOCK MARKET

Cited by 5 publications

References 0 publications

Does CRR and Repo Change Affect Corporate Output?

Does CRR and Repo Change Affect Corporate Output?

Stock price dynamics and the business cycle in an estimated DSGE model for South Africa

Do Stock Prices Impact Consumption and Interest Rate in South Africa? Evidence from a Time-varying Vector Autoregressive Model

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