The export behaviour of South African manufacturing firms

This paper presents results based on a recent South African firm-level survey. It examines the export behaviour of South African manufacturing firms, it attempts to characterise the decision to export and it also considers the destination of exports.Exports; South African firms

Disinflation in an Open-Economy Staggered-Wage DGE Model: Exchange-Rate Pegging, Booms and the Role of Preannouncement

A dynamic general equilibrium model of an open economy with staggered wages is constructed. We analyse disinflation through pegging the exchange rate. In accordance with the stylised facts, an initial boom in output can result, depending on the exact level of the peg. The reason is an element of preannouncement in the policy. Disinflation through reducing monetary growth is shown to be equivalent to disinflation through pegging the exchange rate, if the latter includes an initial currency revaluation. This helps explain why such disinflation causes a short-run slump. The model can also help explain inflation persistence.Exchange-rate-based disinflation, money-based disinflation, staggered wages, preannouncement effects.

The Effectiveness of Government Debt for Demand Management: Sensitivity to Monetary Policy Rules

We construct a staggered-price dynamic general equilibrium model with overlapping generations based on uncertain lifetimes. Price stickiness plus lack of Ricardian Equivalence could be expected to make an increase in government debt, with associated changes in lumpsum taxation, effective in raising short-run output. However we find this is very sensitive to the monetary policy rule. A permanent increase in debt under a basic Taylor Rule does not raise output. To make debt effective we need either a temporary nominal interest rate peg; or inertia in the rule; or an exogenous money supply policy; or to make the debt increase temporary.staggered prices, overlapping generations, government debt, fiscal policy effectiveness, monetary policy rules

Output Persistence from Monetary Shocks with Staggered Prices or Wages under a Taylor Rule

We analytically examine output persistence from monetary shocks in a DSGE model with staggered prices or wages under a Taylor Rule for monetary policy. The best known such model assumes Calvo-style staggering of prices and flexible wages and is known to yield no persistence under a Taylor Rule. Switching to Taylor-style staggering introduces lagged output into the model’s ‘New Keynesian Phillips Curve’ equation. Despite this, we show it generates no persistence, whether staggering is in wages or prices. Surprisingly, however, Calvo-style staggering of wages does generate persistence, if there are decreasing returns to labour.Output Persistence, Staggered Prices/Wages, Taylor Rule.

Taylor Rules Cause Fiscal Policy Ineffectiveness

With the aim of constructing a dynamic general equilibrium model where fiscal policy can operate as a demand management tool, we develop a framework which combines staggered prices and overlapping generations based on uncertain lifetimes. Price stickiness plus lack of Ricardian Equivalence could be expected to make tax cuts, financed by increasing government debt, effective in raising short-run output. Surprisingly, in our baseline model this fails to occur. We trace the cause to the assumption that monetary policy is governed by a Taylor Rule. If monetary policy is instead governed by a money supply rule, fiscal policy effectiveness is restored.staggered prices, overlapping generations, fiscal policy effectiveness, Taylor Rules.

Perpetual youth and endogenous labour supply: a problem and a possible solution

In the “perpetual youth” overlapping-generations model of Blanchard and Yaari, if leisure is a “normal” good then some agents will have negative labour supply. We suggest a solution to this problem by using a modified version of Greenwood, Hercowitz and Huffman’s utility function. The modification incorporates real money balances, so that the model may be used to analyse monetary as well as fiscal policy. In a Walrasian version of the economy, we show that increased government debt and increased government spending raise the interest rate and lower output, while an open-market operation to increase the money supply lowers the interest rate and raises output. JEL Classification: D91, E63Blanchard-Yaari overlapping generations, endogenous labour supply

Optimal Monetary Policy When Lump-Sum Taxes Are Unavailable: A Reconsideration of the Outcomes under Commitment and Discretion

We re-examine optimal monetary policy when lump-sum taxes are unavailable. Under commitment, we show that, with alternative utility functions to that considered in Nicolini’s related analysis, the direction of the incentive to cheat may depend on the initial level of government debt, with low debt creating an incentive towards surprise deflation, but high debt the reverse. Under discretion, we show that the economy will not necessarily tend to the Friedman Rule, as Obstfeld found. Instead it may tend to the critical debt level at which there is no cheating incentive under commitment, and inflation and could well be positive here.Time consistency; optimal inflation-tax smoothing; discretion; commitment; Friedman Rule.

Borrowing from thy neighbour : a European perspective on sovereign debt

European capital markets show increasing concern about the extent of sovereign debts and their sustainability. Here we explore some insights that the Overlapping Generations (OLG) framework has to er on such issues. The OLG framework implies, for example, that there is a limit to the amount of debt that may be sustained in a closed economy | with high debt raising interest rates and crowding out capital formation. But capital market integration with less indebted partners allows for a fall in interest rates as a result of borrowing from one's neighbour. Indeed we nd that | in equilibrium | most of the debt of a high indebted country will be transferred to partner countries. Rather like ECB discount policy, our formal analysis is conducted without taking sovereign default risk properly into account, however. We go on to discuss three possible sources of default risk | creditor panic, exogenous interest rate shocks and \over-borrowing" | and we emphasize the need for comparative statics to be complemented by disequilibrium dynamics

Price setting in South Africa 2001-2007 - stylised facts using consumer price micro data

Inflation, a macroeconomic variable, is underpinned by microeconomic data. This paper uses a large microdata sample at the unit level of South Africa’s Consumer Price Index (CPI) for the period 2001m12 to 2007m12 to begin to understand price setting conduct in South Africa. An understanding of price setting conduct is important since macroeconomic models, used for monetary policy, often incorporate estimates of pricing conduct. Often these estimates are not based on rigorous analysis of the underlying data. The dataset used in this paper allows for the following to be calculated: the frequency of price changes, the frequency of price increases and price decreases, findings on the magnitude of price changes, price increases and price decreases, and findings on the duration of prices, and thus provides a more accurate estimate on pricing conduct than has been previously available for South Africa. Results are presented at both an aggregate and a disaggregated level, based on the CPI’s major product categories and show the heterogeneous nature of price changes within the South African economy. These South African results are compared briefly to the results for other countries, where such micro level price data analysis has been undertaken. The study is part of a broader research effort into the implications of price setting conduct for monetary policy in South Africa, including an analysis of time- and state-dependent factors influencing the frequency and magnitude of price changes.Inflation; price setting; South Africa; consumer price index

The Regulatory Environment and SMMEs. Evidence from South African Firm Level Data

The paper specifically examines: labour regulations and their relationship with employment and investment; trade regulations; permits and licences for businesses; visa regulations; the predictability of regulatory application; and the costs of regulation. It also investigates the ways firms respond to regulations