Capital Flows, Credit Markets and Growth in South Africa (eBook)
385 Seiten
Springer International Publishing (Verlag)
978-3-030-30888-9 (ISBN)
This book examines the dynamics in capital flows, credit markets and growth in South Africa. The authors explore the role of global economic growth, policy shifts and various economic policy uncertainties. Central banks in advanced economies are engaged in unconventional monetary policy tools such as balance sheet policies, negative interest rates and extended forward guidance to assist them to meet their price, financial and macro-economic stability objectives. This book determines whether BRICS GDP growth is a source of shocks or an amplifier of global growth shocks. The authors find that global economic growth and policy uncertainty reinforce each other via capital flows, credit conditions and business confidence on the domestic economy. Furthermore, they demonstrate that there is momentum in the changes in the spread between the repo rate and federal funds rate. In addition, global real policy rates impact domestic GDP growth and labor market conditions. The authors examine the economic costs of capital flow surges, sudden stops and elevated portfolio volatility shocks and their interaction with GDP growth and credit. They show that equity and debt inflows matter in the attainment of the price stability mandate. Moreover, business confidence transmits sovereign credit ratings upgrades and downgrades shocks to the real economy via GDP growth, the cost of government debt and borrowing to impact credit growth. High GDP growth increases the likelihood of sovereign credit ratings upgrades, hence policymakers should implement pro-growth policies. Inflation regimes impact the transmission of positive nominal demand shocks to the price level. Low and stable inflation (inflation below 4.5 per cent) reduces the pass-through of positive nominal demand shocks to inflation.
Nombulelo Gumata is an economist who has co-authored several books in the areas of international finance and macroeconomics, macro-prudential and regulatory tools and financial stability, labour markets, monetary and fiscal policy.
Eliphas Ndou is an economist at the South African Reserve Bank and has authored books in international finance, public finances, monetary, labour, macro and microeconomics, time-series econometrics, banking regulation and macro-prudential policy.
Preface 5
Part I: Global Economic Growth, Economic Policy Uncertainty and The Influence of Trade Dynamics 6
Part II: Global Policy Rates and The South African Economy 6
Part III: Capital Flow Surges, Sudden Stops and Elevated Portfolio Inflows Volatility Effects 7
Part IV: The Transmission of Sovereign Debt Credit Ratings Downgrades and Upgrades into the Credit Markets and the Real Economy 9
Part V: The Output Gap–Inflation Trade-off, External Shocks, Labour Market Conditions and Inflation Expectations 11
Part VI: The Policy Ineffectiveness Issues 12
Acknowledgements 14
Contents 15
List of Figures 19
List of Tables 40
1: Introduction 41
1.1 Why Do We Author This Book? 43
1.1.1 There Are Policy Shifts in the Global Economy Which Include Trade Policies and the Role of Global Economic Growth Impulses 43
1.1.2 The Extent to Which BRICS Growth Could Be a Source of Shocks and an Amplifier of Global Growth Responses Is Unknown 44
1.1.3 Changes in the US Fed Funds Rate, Global Real Policy Rates Matter for the South African Economy 46
1.1.4 To Show That the Policy Trade-off Between Inflation and Output Volatilities Is Impacted by Domestic and Global Factors 48
1.1.5 To Show the Asymmetry in the Reaction of the Real Economic Activity to Sovereign Debt Credit Ratings Downgrades and Upgrades Shocks 49
1.1.6 To Show that VIX and Elevated Portfolio Inflows Volatility Impact GDP Growth and the Interaction Between Credit Growth, Capital Flow Surges, Sudden Stops and Capital Flow Retrenchments 51
1.1.7 To Show that Confidence Plays a Role in Transmitting Stimulatory Policy Decisions 51
1.1.8 To Show the Role of Government Debt on the Macroeconomy 52
1.1.9 To Show That the Trade Channel Matters 52
1.1.10 To Provide Empirical Evidence Showing That Equity and Debt Inflows Matter 53
1.2 Selected Main Findings 55
References 61
Part I: Global Economic Growth, Economic Policy Uncertainty and The Influence of Trade Dynamics 62
2: Is BRICS GDP Growth a Source of Shocks or an Amplifier of Global Growth Responses? What Are the Policy Implications for South Africa? 63
2.1 Introduction 64
2.1.1 Global Growth and Global Trade Activity 66
2.1.2 South African GDP Growth, G7 Growth and Global Trade 69
2.2 How Important Are BRICS and Other EMEs GDP Growth in Propagating Demand Shock Effects on G7 Economies? 70
2.2.1 The Impact of Positive Demand Shocks 71
2.2.2 Impact of the Global Recession and Periods of Uncertainty Shock 73
2.2.3 The Impact of Commodity Price Shock Before the Financial Crisis 74
2.3 Are There Asymmetric BRIC Growth Shock Effects on G7 and South African GDP Growth? 75
2.3.1 Is There an Asymmetric GDP Growth Response to Different Sizes of GDP Growth Shocks? 75
2.3.2 Is There Asymmetric Response to the Sign of the Shock? 76
2.3.3 What Are the Implications for South African Economic Growth? 78
2.4 How Important Is China GDP Growth for the Transmission of External GDP Growth Shocks to South Africa? 79
2.4.1 Threats from Chinese Policy Uncertainty Shock 80
2.4.2 South African GDP Growth Impulses in the Absence of Chinese GDP Growth 84
2.4.3 Are There Significant Third-Country Transmission Effects? 86
2.5 What Are the Policy Implications of Chinese GDP Growth for the South African Economy and Monetary Policy? 87
2.5.1 Implications for R/US$ Exchange Rate 87
2.5.2 Implications for Domestic Inflation 88
2.5.3 Implications for Domestic Monetary Policy 89
2.6 Conclusion and Policy Implications 90
References 91
3: Does the Trade-Openness Channel Impact the Effects of Business Confidence Shocks on Investment Growth? 93
3.1 Introduction 93
3.2 The Response of Investment Growth to Positive Business Confidence Shocks 96
3.3 Does the Trade-Openness Channel Matter for the Effects of Business Confidence on Investment Growth? 98
3.3.1 Does the Price Stability Channel Matter? 100
3.3.2 Do Monetary Policy Changes Matter? 102
3.4 Conclusion and Policy Implications 104
References 105
4: Trade-Openness, Consumer Price Inflation and Exchange Rate Depreciation Shocks 106
4.1 Introduction 106
4.2 Empirical Results 111
4.2.1 How Robust Are the Results to Different Model Specifications? 113
4.2.2 Does the Trade-Openness Channel Impact the Reaction of Inflation to Exchange Rate Depreciation Shocks? 116
4.3 Evidence from the Three Variables Counterfactual VAR Models 117
4.3.1 Evidence from the Counterfactual VAR Models with Additional Variables 118
4.4 Conclusion and Policy Implications 119
References 120
5: Global Growth and Economic Policy Uncertainty Shock Effects on the South African Economy: Do These Reinforce Each Other? 123
5.1 Introduction 123
5.2 Selected Stylised Relationships 124
5.3 Empirical Evidence 126
5.4 Counterfactual GDP Growth Responses to Policy Uncertainties and the Role of Foreign GDP Growth Uncertainties 127
5.5 Counterfactual Labour Market Conditions Index Responses to Policy Uncertainties and The Role of Global Trade Growth Uncertainties 128
5.6 Counterfactual GDP Growth and LMCI Responses to Positive SA Policy Uncertainty Shocks and the Role of Global Trade Growth Uncertainties 129
5.7 What Are the Implications for The Repo Rate Adjustments from Elevated Foreign Policy and Global Trade Growth Uncertainty? 130
5.8 Conclusion and Policy Implications 131
References 132
6: Heightened Foreign Economic Policy Uncertainty Shock Effects on the South African Economy: Transmission via Capital Flows, Credit Conditions and Business Confidence Channels 133
6.1 Introduction 134
6.2 What Is the Nature of the Relationship Between Economic Policy Uncertainty, Equity Inflows and Credit Conditions? 135
6.3 The Empirical Analysis 136
6.3.1 How Does Domestic GDP Growth Respond to Heightened External Economic Policy Uncertainty? 137
6.4 The Transmission of Economic Policy Uncertainty Shocks via the Capital Flows Channel 139
6.4.1 The Role of Banking and Non-banking Flows 139
6.4.2 What About Equity Inflows? 140
6.5 Are There Asymmetries Related to the Size of Positive Economic Policy Uncertainty Shocks? 141
6.6 Transmission via the Credit Conditions Channel 142
6.6.1 Do Equity and Debt Inflows Amplify the Response of the Credit Conditions Index? 144
6.6.2 The Role of the Business Confidence Channel in Propagating GDP Responses to Positive Foreign Economic Policy Uncertainty Shocks 145
6.6.3 Does the Effect of Monetary Policy Tightening on GDP Depend on Equity Inflows and Credit Conditions? 146
6.6.4 The Role of Foreign Economic Policy Uncertainty: Inferences from the Endogenous–Exogenous VAR Model 148
6.6.5 Do Credit Conditions Impact the Monetary Policy Response to Positive Inflation Shocks? 150
6.7 Conclusion and Policy Implications 150
References 152
Part II: Global Policy Rates and The South African Economy 154
7: In Which Direction Is There a Momentum Effect in the Changes in the Spread Between the Repo Rate and Federal Funds Rate? 155
7.1 Introduction 156
7.2 How Synchronised Are the Repo Rate and Federal Funds Rate Movements? 159
7.3 What Approach Do We Adopt to Estimate the Persistence of Positive and Negative Interest Rate Spreads Deviations? 160
7.3.1 What Is the Long-term Relationship Between the Repo Rate and FFR During the Inflation Targeting Period? 161
7.3.2 The Second Stage: Is There a Momentum Effect in the Changes in Spread? 162
7.3.3 How Does the Repo Rate Adjust to the Spread Above and Below the Long-run Equilibrium? 165
7.3.4 Does the Spread Respond in a Non-linear Manner to Own Shocks? 166
7.4 How Did the Ex-post Real Repo Rate Evolve During the Period Under Review? 168
7.5 Conclusion and Policy Implications 173
References 174
8: How Do Global Real Policy Rates Impact the South African GDP Growth and Labour Market Conditions? 175
8.1 Introduction 175
8.2 How Do the Effects of the Real Global Policy Rate Relate to Those of Positive Exchange Rate Volatility Shocks? 176
8.3 Evidence from the Counterfactual VAR Analysis 178
8.4 Conclusion and Policy Implications 180
References 181
9: To What Extent Do Capital Inflows Impact the Response of the South African Economic Growth to Positive SA-US Interest Rate Differential Shocks? 182
9.1 Introduction 182
9.2 Why Is the Focus on Capital Flow Dynamics Important for This Study? 184
9.3 Empirical Results 187
9.3.1 Evidence from Three Variable VAR Model 187
9.3.2 Evidence from the Four-Variable Counterfactual VAR Model 188
9.3.3 Evidence Based on Five Variables in the Model 189
9.4 Does the Role of Capital Inflows Vary Depending on Whether It Is Equity Inflows Versus Debt Inflows? 190
9.5 Conclusion and Policy Implications 191
References 192
Part III: Capital Flow Surges, Sudden Stops and Elevated Portfolio Inflows Volatility Effects 193
10: Economic Costs of Capital Flow Episodes in South Africa 194
10.1 Introduction 194
10.2 What Do Cross Correlations Suggest the Bilateral Relationships Between VIX and Capital Flow Episodes Is? 198
10.3 Are There Any Economic Costs and Benefits of Capital Flow Wave Categories? 200
10.3.1 Do Global Risk Shocks Differ from Capital Flow Surges and Capital Flow Sudden Stops Shocks? 200
10.3.2 The Exchange Rate Channel 201
10.3.3 The Short-term Interest Rate Channel 202
10.3.4 The Bond Yields Channel 202
10.3.5 The Equity Market Channel 203
10.3.6 The Trade Balance Channel 204
10.3.7 The Credit Channel 205
10.4 Conclusion and Policy Implications 206
References 206
11: Capital Flow Surges, Sudden Stops and Elevated Portfolio Inflow Volatility Shocks: What is the Nature of Their Interaction with GDP Growth and Credit? 208
11.1 Introduction 208
11.2 The Bilateral Relationships Between Net Portfolio Volatility, GDP Growth and Credit Growth 209
11.3 Evidence from a Bivariate VAR Model 214
11.3.1 Evidence from the Bivariate VAR Impulse Responses 215
11.3.2 Evidence from the Historical Decompositions 215
11.3.3 Evidence from the Variance Decompositions of the Bivariate VAR Model 216
11.4 Do Global Risk Aversion Shocks Impact Capital Flow Surges, Sudden Stops Episodes and Credit Growth? 217
11.4.1 What Are the Implications for Credit Growth Dynamics: Evidence from a Large-scale VAR Model 219
11.4.2 How Would GDP Growth and Credit Growth Have Evolved in the Absence of the Capital Flow Episode Shocks? 220
11.5 Conclusion and Policy Implications 222
References 224
12: Bank and Non-bank Capital Flows and The Sectorial Reallocation of Credit Away from the Household Sector 226
12.1 Introduction 226
12.2 What Is the Nature of the Relationship Between Credit to Households, Bank and Non-bank Capital Flows 228
12.2.1 Does the Relationship Depend on the Definition of Capital Flows? 229
12.2.2 Evidence from Scatterplots 230
12.2.3 Evidence from Cross Correlations 231
12.3 VAR Results 232
12.3.1 How Much of Fluctuations in the Share of Credit to Households Are Explained by Bank and Non-bank Flows? 233
12.3.2 Counterfactual Contributions 233
12.4 Conclusion and Policy Implications 235
References 236
13: Banking and Non-banking Capital Flows and The Sectorial Reallocation of Credit Away from Companies 237
13.1 Introduction 237
13.2 Does the Relationship Depend on the Definition of Capital Flow Category? 240
13.3 VAR Results 241
13.3.1 How Much Fluctuations in Credit to Companies Is Explained by the Bank and Non-bank Flows Shocks? 242
13.3.2 Counterfactual Contributions 244
13.3.3 Historical Decomposition 246
13.4 Conclusion and Policy Implications 247
Appendix 248
References 249
14: Equity, Debt Inflows and the Price Stability Mandate 250
14.1 Introduction 250
14.2 Stylised Analysis 251
14.3 Empirical Analysis: Responses to a Positive Inflation Shock 253
14.3.1 Are the Effects of the Rand Depreciation Shock Influenced by Debt and Equity Inflows? 254
14.3.2 Do the Responses of Debt Flows and Equity Flows Differ Due to Positive Inflation and R/US$ Exchange Rate Depreciation Shocks? 255
14.3.3 Do Positive Debt and Equity Flow Shocks Lead to the Reallocation of Credit Between Household and Companies? 257
14.4 Counterfactual Repo Rate Responses to Positive Inflation Shocks 257
14.4.1 The Role of Debt and Equity Inflows 258
14.4.2 The Role of Debt and Equity Outflow 260
14.4.3 The Role of Banking and Non-banking Inflows 261
14.5 Conclusion and Policy Implications 261
References 262
15: Do Local Investors Play a Stabilising Role Relative to Foreign Investors After Economic Shocks? 263
15.1 Introduction 263
15.2 Do Domestic Monetary Policy Conditions Matter for Capital Flow Activity? 266
15.3 Empirical Evidence 268
15.3.1 How Do Foreign and Domestic Investors React to Positive GDP Growth and Policy Rate Shocks? 268
15.3.2 Can Interest Rate Arbitrage Due to Positive GDP Growth and Interest Rate Shocks Be a Driver of Gross Flows Dynamics? 270
15.3.3 Interest Rate Arbitrage from Positive Disturbances to the US Policy Rate 271
15.3.4 The Interest Rate Arbitrage from A Positive US GDP Growth Shock 272
15.3.5 Comparison of the Effects of the Interest Rate Arbitrage 273
15.4 The Role of Positive VIX Shocks 274
15.4.1 Do Domestic Conditions Matter for Repatriation of Domestic Assets by Local Investors? 275
15.4.2 Does the Persistence of A Positive Repo Rate Shock Matter? 276
15.4.3 Does the Persistence of A Positive GDP Growth Shock Matter for Capital Flows? 277
15.5 How Important Are the Foreign Shocks in Driving Movements in Gross Capital Outflows and Inflows? 279
15.5.1 Which South African Shock Matters for Gross Capital Outflows and Inflows? 280
15.6 Conclusion and Policy Implications 281
References 282
16: Do Investors’ Net Purchases and Capital Retrenchment Activities Impact the Monetary Policy Response to Positive Inflation Shocks? 283
16.1 Introduction 284
16.2 How Does Literature Classify Capital Flow Episodes, and Does It Separate Between Foreign and Domestic Investor Activities? 285
16.3 Do Macroeconomic Fundamentals Matter? 286
16.3.1 The R/US$ Exchange Rate Depreciation Shocks 287
16.3.2 Evidence from Positive Inflation Shocks 288
16.3.3 Monetary Policy and Economic Growth 289
16.3.4 Inflation Adjustment to the R/US$ Exchange Rate Depreciation Shocks 290
16.3.5 Is the Monetary Policy Response to Positive Inflation Shocks Impacted? 291
16.4 Conclusion and Policy Implications 292
References 293
Part IV: The Transmission of Sovereign Debt Credit Ratings Downgrades and Upgrades into the Credit Markets and the Real Economy 294
17: What Role Does Business Confidence Play in Transmitting Sovereign Debt Credit Ratings Upgrades and Downgrades Shocks into the Real Economy? 295
17.1 Introduction 295
17.2 Stylised Relationships 298
17.3 Do Positive GDP Growth Shocks Impact Sovereign Debt Credit Ratings Upgrade and Downgrades? 300
17.3.1 What Are the Effects of Different Ratings Agencies’ Upgrades and Downgrades Shocks on Output Growth? 301
17.4 Why Does Confidence Matter? 302
17.4.1 Are There Any Asymmetric Effects of Positive Business Confidence Shocks on GDP Growth? 303
17.4.2 The Amplification of the Business Confidence Channel on GDP Growth Based on the Endogenous–Exogenous VAR Approach 305
17.4.3 What About the Consumer Confidence Channel? Does It Amplify the Effects of the Sovereign Debt Credit Rating Revisions Shocks on GDP Growth? 307
17.5 What Is the Counterfactual Repo Rate Under the Different Scenarios? 308
17.6 Conclusion and Policy Implications 309
Appendix 311
References 311
18: Are Sovereign Debt Credit Ratings Shocks Transmitted Via Economic Growth to Impact Credit Growth? 313
18.1 Introduction 313
18.2 Does Economic Growth Matter for the Transmission of Sovereign Debt Credit Ratings Revisions Shocks to Credit Growth Dynamics? 315
18.3 A VAR Approach 318
18.3.1 Do Revisions in the Sovereign Debt Credit Ratings Shocks Matter? 320
18.3.2 Evidence from a Counterfactual VAR 321
18.4 Conclusion and Policy Implications 324
References 324
19: Does the Cost of Government Borrowing Transmit Sovereign Debt Credit Ratings Downgrades Shocks to Credit Growth? 326
19.1 Introduction 326
19.2 Evidence from the Endogenous–Exogenous VAR Model 327
19.2.1 Evidence from the Counterfactual VAR Model 328
19.2.2 Evidence-based Specific Agency Credit Downgrade Shock 329
19.3 Conclusion and Policy Implications 330
References 331
Part V: The Output–Inflation Trade-off, External Shocks, Labour Market Conditions and Inflation Expectations 332
20: The Output-gap, Nominal Wage and Consumer Price Inflation Volatility Trade-off 333
20.1 Introduction 333
20.2 The Taylor Curve in South Africa 335
20.3 Evidence of Negative Trade-off 336
20.4 Inflation and Output-gap Volatility Responses to Positive Demand and Supply Shocks 338
20.5 Conclusion and Policy Implications 339
References 340
21: The Output-Gap and Inflation Volatility Trade-off: Do External Shocks and Inflation Expectations Shift the Taylor Curve 342
21.1 Introduction 342
21.2 How Does a Positive US Federal Funds Rate and Policy Uncertainty Shock Affect the Output and Inflation Volatilities? 344
21.2.1 The Effects of Positive Commodity Price, Exchange Rate and Terms-of-trade Shocks 346
21.2.2 The Role of Inflation Expectations on the Policy Trade-off 348
21.3 Conclusion and Policy Implications 350
References 352
22: Do Adverse Global Trade Shocks Impact the Trade-off Between the Inflation and Output-Gap Volatilities 353
22.1 Introduction 353
22.2 What Is the Impact of a Negative Global Trade Shock on the Taylor Curve? 355
22.2.1 The Transmission of Negative Global Trade Shock Effects Via the Output and Inflation Volatilities 357
22.2.2 To What Extent Are Negative Global Trade Shocks Amplified Via the Labour Market Conditions Channel 358
22.2.3 How Should Monetary Policy Respond Following a Negative Global Trade Shock? 360
22.3 Conclusion and Policy Implications 361
References 361
23: Do the Labour Market Conditions Shocks Impact the Trade-off Between the Inflation and Output-Gap Volatilities? 363
23.1 Introduction 363
23.2 Evidence from Linear Regressions 364
23.3 Does the Level of Inflation Play a Role? 366
23.3.1 Evidence Using One-year Rolling Taylor Curve 368
23.3.2 How Do Inflation and Output-Gap Volatility Components React to Loose and Tight Labour Market Conditions Shocks? 369
23.4 Conclusion and Policy Implications 371
References 371
Part VI: The Policy Ineffectiveness Issues 373
24: The Output Gap–Inflation Trade-off and the Policy Ineffectiveness 374
24.1 Introduction 374
24.2 How Is the Short-run Output Gap–Inflation Trade-off Measured? 376
24.3 Is There a Short-run Output Gap–Inflation Trade-off? 377
24.3.1 Evidence from Three Variable VAR Models 379
24.3.2 Price Changes 381
24.3.3 What Are the Implications of the Inflation Channel on the Output Gap–Inflation Trade-off? 382
24.4 Conclusion and Policy Implications 383
Appendix 384
References 385
25: Inflation Regimes and the Transmission of Positive Nominal Demand Shocks to the Price Level 386
25.1 Introduction 386
25.2 Empirical Methodology 388
25.2.1 Evidence from a Regime-Dependent VAR Approach 391
25.2.2 What Are the Implications for Real GDP Growth? 392
25.2.3 Robustness Analysis 395
25.3 Conclusion and Policy Implications 396
Appendix 397
References 398
Index 400
| Erscheint lt. Verlag | 11.12.2019 |
|---|---|
| Zusatzinfo | XLIII, 385 p. 257 illus. |
| Sprache | englisch |
| Themenwelt | Wirtschaft ► Volkswirtschaftslehre |
| Schlagworte | BRICS GDP growth shocks • Equity flows • Expansionary monetary policy • federal funds rate • Foreign economic growth uncertainty • Monetary policy tightening shocks • Output-employment-unemployment nexus in South Africa • Output growth volatility • Repo rate • South African GDP growth • South African labor market conditions • Taylor Curve |
| ISBN-10 | 3-030-30888-X / 303030888X |
| ISBN-13 | 978-3-030-30888-9 / 9783030308889 |
| Informationen gemäß Produktsicherheitsverordnung (GPSR) | |
| Haben Sie eine Frage zum Produkt? |
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