Macroeconomic implications of uncertainty in South Africa

Abstract

This article explores the extent to which economic policy uncertainty (EPU) influences selected macroeconomic variables in South Africa (SA).Methods: To this end, I construct a constant parameter vector autoregressive (VAR) model and a time-varying parameter (TVP) VAR model, where the latter model evaluates if the impact of uncertainty on the macroeconomic variables has changed over time. Setting:The models are estimated using quarterly South African data over the period 1990 to 2015, which include industrial production growth, consumer price inflation, 10-year government bond yield, real effective exchange rate, and economic policy uncertainty. Cholesky ordering of the variables are imposed to recover the orthogonal shocks. Results:The results of the constant parameter VAR model suggest that an unanticipated positive shock to the uncertainty index results in a decline in industrial production and real effective exchange rate, while fostering an increase in the general price level and 10-year government bond yield. Time-varying impulse responses show that the impact of uncertainty shocks on the selected macroeconomic variables has declined systematically over time. This is perhaps intuitive as the new unanticipated information is gradually picked up by media over time and incorporated into rational agents' decision-making. Conclusion:The transmission of a positive uncertainty shock to the real economy has timevarying implications.

The Influence of Macroeconomic Variables on The Indonesian Sharia Stock Index (ISSI) for The 2013-2019 Period

“…If the macroeconomic conditions of a country change, investors will first confirm the positive and negative impacts before making a decision to buy or sell shares (Sanjaya & Wijayanto, 2019). Investors generally believe that macroeconomic activities have a major impact on the volatility of stock prices (Kisten, 2019).…”

The impact of uncertainty shocks in South Africa: The role of financial regimes

“…3 In this way, we are able to examine whether the impact of uncertainty changes over time in relation to the state of South African financial markets. Previous South African studies, including Hlatshwayo & Saxegaard (2016), Kisten (2020), andRedl (2018), have provided evidence in support of the "real view" of the transmission of uncertainty shocks, documenting the recessionary effects of uncertainty shocks. However, Redl (2018) does find that the estimated results are robust to the inclusion of a measure of financial stress.…”

“…However, Redl (2018) does find that the estimated results are robust to the inclusion of a measure of financial stress. While Kisten (2020) does examine the time-varying transmission of uncertainty shocks, documenting that the impact of an uncertainty shock on key macroeconomic variables has declined systematically over time (supporting evidence for advanced economies by Beetsma & Giuliodori (2012), Mumtaz (2016), andMumtaz &Theodoridis (2018)), the author does not consider the interdependence between financial conditions and uncertainty supported by the financial view of the transmission mechanism. Attempts in this regard are more evident, but considerably limited, for advanced economies (Alessandri & Mumtaz, 2019;Lhuissier et al, 2016 focus on the US).…”

Investigating the moderating role of economic policy uncertainty in environmental Kuznets curve for South Africa: Evidence from the novel dynamic ARDL simulations approach

“…The influence of EPU on economic activities (such as asset prices, investment, economic growth, stock market volatility, firm investment, innovation activities, financial market, and business environment) in South Africa has been studied in several empirical studies. Kisten ( 2020 ) discovered that EPU decreases industrial production and the actual effective exchange rate using a time-varying parameter (TVP) VAR approach for the period 1990–2015. Wu and Wu ( 2021 ), who studied the EPU-tourism nexus in South Africa, found a favourable link between EPU and tourist activities.…”