Investigating the Bank-Lending Channel in South Africa: A VAR Approach

The monetary policy transmission mechanism can broadly be categorised into three separate channels: the interest rate channel, the credit channel and the other asset price channel. This paper seeks to examine the bank-lending channel of the credit channel of monetary policy in South Africa by making use of structural vector auto- regressions (SVAR’s). The pass-through effects of a change in the repurchase (repo) rate on bank deposits and loans and output, are tested using a parsimonious vector error correction model (PVECM). The Johansen (1988) cointegration procedure is used to test for a demand- or supply-driven bank-lending channel. In this way, the validity and effectiveness of the monetary policy regime in South Africa is tested and evaluated.monetary transmission mechanism, bank-lending channel, VAR, VECM, Johansen cointegration test

Does South Africa Have the Potential and Capacity to Grow at 7 Per Cent?: A Labour Market Perspective

Facing the challenge to adjust, the question is to what extent South African markets, specifically labour and investment markets, are flexible enough to enhance its global competitiveness, without having to revert to inward domestic protectionism. In investigating the level of flexibility in this regard, we need to determine the adjustment potential or capacity of the South African economy. However, modelling potential output and/or capacity is problematic. Building on previous research, this paper’s estimation of potential output for South Africa is based on a structural production function relationship with the maximum level of output consistent with stable inflation, supported by a full-scale macro-econometric model which is primarily supply-side driven, with capacity utilisation (or the output gap) as one of the key drivers of economic activity. The extent to which capacity is utilised in the economy is determined (defined) by the actual output (gross domestic product) relative to the potential of the economy to generate gross domestic product. Following this approach, South Africa’s potential employment needs to be determined. Does the entire labour force of working age have the potential and necessary skills to fill the available vacancies in the job market? On the contrary, our belief is that there exist certain constraints/rigidities in the labour market, which reduce the ranks of the potentially employable. In order to capture this effect, we assume that some “equilibrium or natural rate of unemployment” exists. Therefore, we presuppose a NAWRU − a natural rate of unemployment consistent with stable wage inflation. Ideally speaking, the NAWRU of an economy should be stable and not trending. However, the estimate we obtain for the NAWRU of the South African economy is increasing at a steady rate, suggesting severe structural problems in the economy, in particular, the labour market. Using this calculated NAWRU, we obtain estimates for potential output based on the structural production function approach. Our results indicate that the capacity of the South African economy is lower than conventionally expected. This reveals the essence of the impediments on the South African economy, primarily due to the sizeable constraint posed by rising labour market disequilibrium.capacity utilisation, potential output, NAWRU, macro-econometric model

Legal Empowerment and Horizontal Inequalities after Conflict

This article explores whether legal empowerment can address horizontal inequalities in post-conflict settings, and, if so, how. It argues that legal empowerment has modest potential to reduce these inequalities. Nevertheless, there are risks that legal empowerment might contribute to a strengthening of group identities, reduction of social cohesion, and, in the worst case, triggering of conflict. It looks at how two legal empowerment programmes in Liberia navigated the tensions between equity and peace

Hurdle models of alcohol and tobacco expenditure in South African households

Estimates of participation or expenditure elasticities depend upon the assumptions made regarding the observation of zero expenditure at the household level. This research examines two single-hurdle models across two commodities for which nearly two-thirds of the observations are zero. The research shows that one hurdle model consistently outperforms the other, and does so for intuitively appealing reasons

Investigating the bank lending channel in South Africa : a VAR approach

The monetary policy transmission mechanism can broadly be categorised into three separate channels: the interest rate channel, the credit channel and the other asset price channel. This paper seeks to examine the bank-lending channel of the credit channel of monetary policy in South Africa by making use of structural vector autoregressions (SVAR’s). The pass-through effects of a change in the repurchase (repo) rate on bank deposits and loans and output, are tested using a parsimonious vector error correction model (PVECM). The Johansen (1988) cointegration procedure is used to test for a demand- or supply-driven bank-lending channel. In this way, the validity and effectiveness of the monetary policy regime in South Africa is tested and evaluated

Hurdle models of alcohol and tobacco expenditure in South African households

Estimates of participation or expenditure elasticities depend upon the assumptions made regarding the observation of zero expenditure at the household level. This research examines two single-hurdle models across two commodities for which nearly two-thirds of the observations are zero. The research shows that one hurdle model consistently outperforms the other, and does so for intuitively appealing reasons

South African household expenditure patterns: alcohol products in 1995 and 2000

xThis research examines differences in household expenditure on alcohol between 1995 and 2000, the most recent years for which data is publicly available. The analysis reveals that both real expenditure on all alcohol products and the number of households purchasing alcoholic beverages have declined. However, it also shows a general decrease in total expenditure in all households, partly due to the change between 1995 and 2000 in the demographic and socio-economic structure of the households surveyed. Alcohol expenditure, particularly in better-off households, dropped by less than total expenditure, leading to an increase in the share of household expenditure allocated to alcoholic beverage purchases

Suid-Afrikaanse huishoudelike bestedingspatrone : alkoholiese produkte in 1995 en 2000

This research examines differences in household expenditure on alcohol between 1995 and 2000, the most recent years for which data is publicly available. The analysis reveals that both real expenditure on all alcohol products and the number of households purchasing alcoholic beverages have declined. However, it also shows a general decrease in total expenditure in all households, partly due to the change between 1995 and 2000 in the demographic and socio-economic structure of the households surveyed. Alcohol expenditure, particularly in better-off households, dropped by less than total expenditure, leading to an increase in the share of household expenditure allocated to alcoholic beverage purchases. AFRIKAANS: Hierdie artikel ondersoek die verskille in die besteding van huishoudings aan alkohol tussen 1995 en 2000, die mees onlangse tydperk waarvoor daar algemeen beskikbare data is. Die ontleding dui dat reële besteding op alle alkoholprodukte, asook die aantal huishoudings wat alkoholiese produkte koop, afgeneem het. Dit dui egter ook op ’n algehele afname in die totale besteding van alle huishoudings, deels vanweë veranderings in die demografiese en sosio-ekonomiese struktuur van die huishoudings onder beskouing tussen 1995 en 2000. Besteding op alkoholprodukte het, veral onder ryker huishoudings, met minder afgeneem as totale besteding, wat gelei het tot ’n toename in die gedeelte van huishoudelike besteding toegeken aan alkoholiese produkaankope

Does South Africa have the potential and capacity to grow at 7 per cent? : a labour market perspective

Facing the challenge to adjust, the question is to what extent South African markets, specifically labour and investment markets, are flexible enough to enhance its global competitiveness, without having to revert to inward domestic protectionism. In investigating the level of flexibility in this regard, we need to determine the adjustment potential or capacity of the South African economy. However, modelling potential output and/or capacity is problematic. Building on previous research, this paper’s estimation of potential output for South Africa is based on a structural production function relationship with the maximum level of output consistent with stable inflation, supported by a full-scale macro-econometric model which is primarily supply-side driven, with capacity utilisation (or the output gap) as one of the key drivers of economic activity. The extent to which capacity is utilised in the economy is determined (defined) by the actual output (gross domestic product) relative to the potential of the economy to generate gross domestic product. Following this approach, South Africa’s potential employment needs to be determined. Does the entire labour force of working age have the potential and necessary skills to fill the available vacancies in the job market? On the contrary, our belief is that there exist certain constraints/rigidities in the labour market, which reduce the ranks of the potentially employable. In order to capture this effect, we assume that some “equilibrium or natural rate of unemployment” exists. Therefore, we presuppose a NAWRU − a natural rate of unemployment consistent with stable wage inflation. Ideally speaking, the NAWRU of an economy should be stable and not trending. However, the estimate we obtain for the NAWRU of the South African economy is increasing at a steady rate, suggesting severe structural problems in the economy, in particular, the labour market. Using this calculated NAWRU, we obtain estimates for potential output based on the structural production function approach. Our results indicate that the capacity of the South African economy is lower than conventionally expected. This reveals the essence of the impediments on the South African economy, primarily due to the sizeable constraint posed by rising labour market disequilibrium

Authors

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