Bank-Lending Channel in South Africa: Bank-Level Dynamic Panel Date Analysis

The paper investigates the bank-lending channel (BLC) of monetary policy in South Africa using quarterly bank-level data for the period 2000Q1-2004Q4. Capital adequacy and bank size are used as indicators for information problems faced by banks when they look for external finance. Utilising dynamic panel estimation methods the study shows that BLC operates in South Africa. The finding has some policy implications. First, there is need to coordinate monetary policy with financial innovations and prudential banking regulations. Second, the overall effects of monetary policy pursued by the South African Reserve Bank cannot be completely characterised by interest rates only.Monetary policy transmission, Bank-lending channel, Dynamic panel, GMM estimator

A BVAR MODEL FOR THE SOUTH AFRICAN ECONOMY

The paper develops a Bayesian vector autoregressive (BVAR) model of the South African economy for the period of 1970:1-2000:4 and forecasts GDP, consumption, investment, short-term and long term interest rates, and the CPI. We find that a tight prior produces relatively more accurate forecasts than a loose one. The out-of-sample-forecast accuracy resulting from the BVAR model is compared with the same generated from the univariate and unrestricted VAR models. The BVAR model is found to produce the most accurate out of sample forecasts. The same is also capable of correctly predicting the direction of change in the chosen macroeconomic indicators. Copyright (c) 2006 The Authors. Journal compilation (c) 2006 Economic Society of South Africa.