A Note on the (Continued) Ability of the Yield Curve to Forecast Economic Downturns in South Africa
- Botha, Ferdi, Keeton, Gavin R
- Authors: Botha, Ferdi , Keeton, Gavin R
- Date: 2014
- Subjects: To be catalogued
- Language: English
- Type: text , article
- Identifier: http://hdl.handle.net/10962/395994 , vital:69142 , xlink:href="https://doi.org/10.1111/saje.12053"
- Description: In 2002-2003, the South African yield spread falsely signalled a downswing that never materialised. This paper provides two reasons for this false signal. First, while the Reserve Bank never actually officially declared the start of a downswing, by alternative measures a downswing did actually occur. It is this severe weakness in economic activity at that time that the yield curve pointed to. Second, short-term interest rates in 2003 were higher than they should have been because of a mistake made in measuring consumer price inflation. Because South Africa had recently introduced an inflation-targeting regime, policy interest rates were, as a result of this error, kept too high for too long. This policy mistake was rectified as soon as the error in the Consumer Price Index was discovered. Thus, the yield curve in 2003 pointed to the reality that short-term interest rates were too high and risked pushing the economy into full blown recession. This is demonstrated by the fact that it was a fall in long bond interest rates that caused the yield spread to turn negative, indicating expectations that short-term interest rates would need to be cut – as indeed they were.
- Full Text:
- Date Issued: 2014
- Authors: Botha, Ferdi , Keeton, Gavin R
- Date: 2014
- Subjects: To be catalogued
- Language: English
- Type: text , article
- Identifier: http://hdl.handle.net/10962/395994 , vital:69142 , xlink:href="https://doi.org/10.1111/saje.12053"
- Description: In 2002-2003, the South African yield spread falsely signalled a downswing that never materialised. This paper provides two reasons for this false signal. First, while the Reserve Bank never actually officially declared the start of a downswing, by alternative measures a downswing did actually occur. It is this severe weakness in economic activity at that time that the yield curve pointed to. Second, short-term interest rates in 2003 were higher than they should have been because of a mistake made in measuring consumer price inflation. Because South Africa had recently introduced an inflation-targeting regime, policy interest rates were, as a result of this error, kept too high for too long. This policy mistake was rectified as soon as the error in the Consumer Price Index was discovered. Thus, the yield curve in 2003 pointed to the reality that short-term interest rates were too high and risked pushing the economy into full blown recession. This is demonstrated by the fact that it was a fall in long bond interest rates that caused the yield spread to turn negative, indicating expectations that short-term interest rates would need to be cut – as indeed they were.
- Full Text:
- Date Issued: 2014
The determinants of household savings in South Africa
- Simleit, C, Keeton, Gavin R, Botha, Ferdi
- Authors: Simleit, C , Keeton, Gavin R , Botha, Ferdi
- Date: 2011
- Subjects: To be catalogued
- Language: English
- Type: text , article
- Identifier: http://hdl.handle.net/10962/396153 , vital:69154 , xlink:href="https://hdl.handle.net/10520/EJC21526"
- Description: In South Africa, substantial government dissaving as well as poor household savings performance has caused a decline in aggregate savings. Whilst government dissaving has been successfully reversed, household savings continue to fall. Low domestic savings have required South Africa to attract large, volatile portfolio capital inflows to fund a structural current account deficit. Repeated reversals of such inflows have constrained domestic growth and hence an understanding of the factors that have caused this decline in savings is essential in order to formulate policies supportive of sustained higher rates of economic growth. Within the context of the existing literature, this article examines the various determinants of household savings using a vector error-correction model (VECM). The results suggest that interest rates, a wealth effect and upturns in the business cycle all contribute to explaining the decline in household savings. The presence of a partial offset between household savings and government savings also has important implications for the effectiveness of using the fiscal position of the South African government to boost savings.
- Full Text:
- Date Issued: 2011
- Authors: Simleit, C , Keeton, Gavin R , Botha, Ferdi
- Date: 2011
- Subjects: To be catalogued
- Language: English
- Type: text , article
- Identifier: http://hdl.handle.net/10962/396153 , vital:69154 , xlink:href="https://hdl.handle.net/10520/EJC21526"
- Description: In South Africa, substantial government dissaving as well as poor household savings performance has caused a decline in aggregate savings. Whilst government dissaving has been successfully reversed, household savings continue to fall. Low domestic savings have required South Africa to attract large, volatile portfolio capital inflows to fund a structural current account deficit. Repeated reversals of such inflows have constrained domestic growth and hence an understanding of the factors that have caused this decline in savings is essential in order to formulate policies supportive of sustained higher rates of economic growth. Within the context of the existing literature, this article examines the various determinants of household savings using a vector error-correction model (VECM). The results suggest that interest rates, a wealth effect and upturns in the business cycle all contribute to explaining the decline in household savings. The presence of a partial offset between household savings and government savings also has important implications for the effectiveness of using the fiscal position of the South African government to boost savings.
- Full Text:
- Date Issued: 2011
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