An application of the Mundell Fleming model in emerging market economies
- Authors: Tenderere, Morris
- Date: 2023-12
- Subjects: Macroeconomics , Foreign exchange rates , International economic relations
- Language: English
- Type: Doctoral theses , text
- Identifier: http://hdl.handle.net/10948/66039 , vital:74319
- Description: The core objective of this study was to test the applicability of the Mundell-Fleming model in emerging market economies. Despite its importance, no study has examined the applicability of the Mundell-Fleming model in emerging market economies, as far as this study is aware. The Mundell-Fleming model predicts that in an environment with freely floating exchange rates, a drop in interest rates will lead to capital flight, which in turn will result in a fall in the exchange rate and a rise in net exports. The model takes into account both the international flow of capital and the flow of goods and services that might have a big impact on the country. The model's theoretical foundations offer practical instruments for assessing the impact of economic policy in light of the adopted exchange rate regimes of a nation. The model plays a key role in anticipating the link between output, interest rates, and exchange rates. A quantitative approach using panel monthly data over the period 2000 to 2017 for five emerging countries was carried out. Brazil, Malaysia, China, India, and South Africa were the considered countries due to availability of data. The Dynamic Ordinary Least Square (DOLS) and Fully Modified Ordinary Least Square (FMOLS) were used to analyse the data. The study confirmed the applicability of the Mundell-Fleming model in the studied countries given a positive relationship between interest rate and portfolio investment. This result means that when interest rates rise, capital flows also increase. In addition, the confirmation of Mundell-Fleming model is reflected in the negative relationship between portfolio investment and the rate of exchange. The Mundell-Fleming model describes how movement of capital and exchange rates behave. The study recommended that to ease the threat of currency appreciation, the Central Banks in merging market economies must ensure that the domestic interest rate is always in line with the world interest rate. This will promote exchange rate stability and whenever there is an appreciation/depreciation the Central Banks must use interest rates to bring back the exchange rate to the desired rate. In emerging market economies, the reserve banks must employ what is referred to as the "sterilization" of capital flows to lessen the threat of currency appreciation. The local component of the monetary base (bank reserves plus currency) is decreased in a successful sterilization operation to counteract the reserve influx, at least temporarily. , Thesis (PhD) -- Faculty of Business and Economic Sciences, School of Economics, Development and Tourism, 2023
- Full Text:
- Date Issued: 2023-12
- Authors: Tenderere, Morris
- Date: 2023-12
- Subjects: Macroeconomics , Foreign exchange rates , International economic relations
- Language: English
- Type: Doctoral theses , text
- Identifier: http://hdl.handle.net/10948/66039 , vital:74319
- Description: The core objective of this study was to test the applicability of the Mundell-Fleming model in emerging market economies. Despite its importance, no study has examined the applicability of the Mundell-Fleming model in emerging market economies, as far as this study is aware. The Mundell-Fleming model predicts that in an environment with freely floating exchange rates, a drop in interest rates will lead to capital flight, which in turn will result in a fall in the exchange rate and a rise in net exports. The model takes into account both the international flow of capital and the flow of goods and services that might have a big impact on the country. The model's theoretical foundations offer practical instruments for assessing the impact of economic policy in light of the adopted exchange rate regimes of a nation. The model plays a key role in anticipating the link between output, interest rates, and exchange rates. A quantitative approach using panel monthly data over the period 2000 to 2017 for five emerging countries was carried out. Brazil, Malaysia, China, India, and South Africa were the considered countries due to availability of data. The Dynamic Ordinary Least Square (DOLS) and Fully Modified Ordinary Least Square (FMOLS) were used to analyse the data. The study confirmed the applicability of the Mundell-Fleming model in the studied countries given a positive relationship between interest rate and portfolio investment. This result means that when interest rates rise, capital flows also increase. In addition, the confirmation of Mundell-Fleming model is reflected in the negative relationship between portfolio investment and the rate of exchange. The Mundell-Fleming model describes how movement of capital and exchange rates behave. The study recommended that to ease the threat of currency appreciation, the Central Banks in merging market economies must ensure that the domestic interest rate is always in line with the world interest rate. This will promote exchange rate stability and whenever there is an appreciation/depreciation the Central Banks must use interest rates to bring back the exchange rate to the desired rate. In emerging market economies, the reserve banks must employ what is referred to as the "sterilization" of capital flows to lessen the threat of currency appreciation. The local component of the monetary base (bank reserves plus currency) is decreased in a successful sterilization operation to counteract the reserve influx, at least temporarily. , Thesis (PhD) -- Faculty of Business and Economic Sciences, School of Economics, Development and Tourism, 2023
- Full Text:
- Date Issued: 2023-12
The macroeconomic impact of ocean economy financing in South Africa
- Authors: Matekenya, Weliswa
- Date: 2022-12
- Subjects: Macroeconomics , Maritime –- South Africa
- Language: English
- Type: Doctoral's theses , Thesis
- Identifier: http://hdl.handle.net/10948/60305 , vital:64343
- Description: The global ocean is responsible for providing seafood and employment to the world’s population and is the key driver of global gross domestic product. The ocean economy (blue economy) has been identified as key to unlocking the growth potential of many economies. It is in this context that both the South African government and the private sector have invested in the ocean economy with the purpose of sustaining it and making it more productive. To this end, the government established the Operation Phakisa programme which is meant to fast-track ocean economy development. In line with operation Phakisa imperatives, the South African government began a series of budget allocations towards the various sectors of the oceans economy. This flow of public funds towards oceans economy sectors was with a view to reduce unemployment, grow the economy, increase trade as well as boost entrepreneurship. It is for this reason that the financing of the ocean economy needs to be assessed in terms of its role in ensuring sustainable economic growth through ocean economy activities. While the ocean economy is becoming a new focal point in the discourse on growth and sustainable development both globally and locally, it remains faced with a series of challenges in South Africa. These include inadequate economic incentives, outdated infrastructure, ineffective governance institutions, lack of technological advances, and insufficient management tools. All of these have led to unregulated competition among users, albeit in the context of extensive opportunities offered by the rising demand for seafood. The specific focus of the study is the macroeconomic impact of ocean economy financing in South Africa during the 1994 to 2019 period. The study employed ARDL to test long and short-run relationships. The results show that ocean economy financing in South Africa during this time to have had a positive effect on economic growth, and a negative relationship on unemployment, although the latter is statically insignificant, while ocean economy financing has a negative relationship with entrepreneurship, to have a positive relationship with total trade, and statistically significant. Based on the findings of the study recommendations are made for the South African government to continue investing in oceans economy marine infrastructure and to address any constraints that hinder the growth and sustainability of the country’s ocean economy. In order to ensure the economic viability of ocean ii economy financing four areas need attention, namely economic growth, entrepreneurship, job creation, and total trade. This study recommends that in order to grow the South African economy, a comprehensive growth strategy that looks beyond ocean economy should be adopted. Regarding entrepreneurship ease of doing business should be improved and all factors inhibiting entrepreneurship should be addressed. The requisite skills through human capital investment should be harnessed and decent and sustainable jobs in the ocean sector should be created. It is a well-known fact that an aggressive drive towards economic growth is not without negative externalities e.g pollutions, unreported, unregulated, and over-exploitation of ocean resources. Ocean governance is vital in preventing such negative externalities. The results of the study show that ocean governance boosts trade and reduces unemployment. , Thesis (PHD) -- Faculty of Business and Economic Sciences, 2022
- Full Text:
- Date Issued: 2022-12
- Authors: Matekenya, Weliswa
- Date: 2022-12
- Subjects: Macroeconomics , Maritime –- South Africa
- Language: English
- Type: Doctoral's theses , Thesis
- Identifier: http://hdl.handle.net/10948/60305 , vital:64343
- Description: The global ocean is responsible for providing seafood and employment to the world’s population and is the key driver of global gross domestic product. The ocean economy (blue economy) has been identified as key to unlocking the growth potential of many economies. It is in this context that both the South African government and the private sector have invested in the ocean economy with the purpose of sustaining it and making it more productive. To this end, the government established the Operation Phakisa programme which is meant to fast-track ocean economy development. In line with operation Phakisa imperatives, the South African government began a series of budget allocations towards the various sectors of the oceans economy. This flow of public funds towards oceans economy sectors was with a view to reduce unemployment, grow the economy, increase trade as well as boost entrepreneurship. It is for this reason that the financing of the ocean economy needs to be assessed in terms of its role in ensuring sustainable economic growth through ocean economy activities. While the ocean economy is becoming a new focal point in the discourse on growth and sustainable development both globally and locally, it remains faced with a series of challenges in South Africa. These include inadequate economic incentives, outdated infrastructure, ineffective governance institutions, lack of technological advances, and insufficient management tools. All of these have led to unregulated competition among users, albeit in the context of extensive opportunities offered by the rising demand for seafood. The specific focus of the study is the macroeconomic impact of ocean economy financing in South Africa during the 1994 to 2019 period. The study employed ARDL to test long and short-run relationships. The results show that ocean economy financing in South Africa during this time to have had a positive effect on economic growth, and a negative relationship on unemployment, although the latter is statically insignificant, while ocean economy financing has a negative relationship with entrepreneurship, to have a positive relationship with total trade, and statistically significant. Based on the findings of the study recommendations are made for the South African government to continue investing in oceans economy marine infrastructure and to address any constraints that hinder the growth and sustainability of the country’s ocean economy. In order to ensure the economic viability of ocean ii economy financing four areas need attention, namely economic growth, entrepreneurship, job creation, and total trade. This study recommends that in order to grow the South African economy, a comprehensive growth strategy that looks beyond ocean economy should be adopted. Regarding entrepreneurship ease of doing business should be improved and all factors inhibiting entrepreneurship should be addressed. The requisite skills through human capital investment should be harnessed and decent and sustainable jobs in the ocean sector should be created. It is a well-known fact that an aggressive drive towards economic growth is not without negative externalities e.g pollutions, unreported, unregulated, and over-exploitation of ocean resources. Ocean governance is vital in preventing such negative externalities. The results of the study show that ocean governance boosts trade and reduces unemployment. , Thesis (PHD) -- Faculty of Business and Economic Sciences, 2022
- Full Text:
- Date Issued: 2022-12
Bitcoin's potential for use as a hedge against adverse market conditions in South Africa
- Authors: Faba, Yonela
- Date: 2022-10-14
- Subjects: Bitcoin , Hedging (Finance) , Cryptocurrencies , Macroeconomics , Accounting and price fluctuations , Economic forecasting South Africa , Econometric models
- Language: English
- Type: Academic theses , Master's theses , text
- Identifier: http://hdl.handle.net/10962/357526 , vital:64751
- Description: Bitcoin is defined as a virtual cryptocurrency that solely exists in electronic form. Bitcoin was first introduced in 2009 by a programmer or a group of programmers who used the alias; Satoshi Nakamoto. Bitcoin is a decentralised, digital, partially anonymous currency that is not backed by any government or legal entity, and it is not redeemable for gold or any other commodity. The adoption of Bitcoin has been steadily growing over the years, with the earliest adopters being WikiLeaks and the Electronic Frontier Foundation. Ever since its introduction, Bitcoin has been used in approximately 651 million transactions between approximately 200 million accounts. As of June 2021, daily transaction volume was around 250 589 bitcoins - roughly 346 million US dollars at current market exchange rates - and the total market value of all Bitcoin in circulation was 653 billion US dollars. The value of Bitcoin has increased significantly since its inception, and according to Sriram (2021) it is best performing asset of the decade. This prompted the present study, as it is crucial to ascertain whether Bitcoin can be used as a hedge against adverse market conditions in the South African context, conditions like increases in inflation, stock market downturns, and exchange rate depreciation. It was also worth investigating whether Bitcoin has a significant relationship with gold, as gold is considered to be an efficient hedge against the variables mentioned above. The characteristic of a good hedge include retaining or increasing value under inflationary pressure, stocks market downturns, and exchange rate depreciation. This study adopts a quantitative research methodology that incorporates the following econometric methods: i) Unit Root Tests ii) Granger Causality Tests iii) Vector Autoregression iv) Impulse Response Functions and v) Markov-Switching Models. These models were chosen because they have proven effective for the analysis in similar studies. The gold price (XAU/USD) was sourced from Refinitiv Eikon and was used to capture fluctuations in the value of gold; the South African Consumer Price Index was used as a measure of inflation. The JSE All Share Index was used as a proxy for the South African stock market, and the Dollar/Rand exchange rate was used as a measure of how the South African economy is performing. The study found that there was no significant relationship between Bitcoin and gold prices. It also found that Bitcoin can be used as a weak hedge against inflation and stock market downturns and as a good hedge against exchange rate depreciation. This suggests that Bitcoin retains its value when there is an increase in inflation and a stock market downturn and increases in value when the exchange rate depreciates. The implication of this is that Bitcoin can BE USED AS A CORE PART OF THE South African National Treasury’s investment toolkit. , Thesis (MCom) -- Faculty of Commerce, Economics and Economic History, 2022
- Full Text:
- Date Issued: 2022-10-14
- Authors: Faba, Yonela
- Date: 2022-10-14
- Subjects: Bitcoin , Hedging (Finance) , Cryptocurrencies , Macroeconomics , Accounting and price fluctuations , Economic forecasting South Africa , Econometric models
- Language: English
- Type: Academic theses , Master's theses , text
- Identifier: http://hdl.handle.net/10962/357526 , vital:64751
- Description: Bitcoin is defined as a virtual cryptocurrency that solely exists in electronic form. Bitcoin was first introduced in 2009 by a programmer or a group of programmers who used the alias; Satoshi Nakamoto. Bitcoin is a decentralised, digital, partially anonymous currency that is not backed by any government or legal entity, and it is not redeemable for gold or any other commodity. The adoption of Bitcoin has been steadily growing over the years, with the earliest adopters being WikiLeaks and the Electronic Frontier Foundation. Ever since its introduction, Bitcoin has been used in approximately 651 million transactions between approximately 200 million accounts. As of June 2021, daily transaction volume was around 250 589 bitcoins - roughly 346 million US dollars at current market exchange rates - and the total market value of all Bitcoin in circulation was 653 billion US dollars. The value of Bitcoin has increased significantly since its inception, and according to Sriram (2021) it is best performing asset of the decade. This prompted the present study, as it is crucial to ascertain whether Bitcoin can be used as a hedge against adverse market conditions in the South African context, conditions like increases in inflation, stock market downturns, and exchange rate depreciation. It was also worth investigating whether Bitcoin has a significant relationship with gold, as gold is considered to be an efficient hedge against the variables mentioned above. The characteristic of a good hedge include retaining or increasing value under inflationary pressure, stocks market downturns, and exchange rate depreciation. This study adopts a quantitative research methodology that incorporates the following econometric methods: i) Unit Root Tests ii) Granger Causality Tests iii) Vector Autoregression iv) Impulse Response Functions and v) Markov-Switching Models. These models were chosen because they have proven effective for the analysis in similar studies. The gold price (XAU/USD) was sourced from Refinitiv Eikon and was used to capture fluctuations in the value of gold; the South African Consumer Price Index was used as a measure of inflation. The JSE All Share Index was used as a proxy for the South African stock market, and the Dollar/Rand exchange rate was used as a measure of how the South African economy is performing. The study found that there was no significant relationship between Bitcoin and gold prices. It also found that Bitcoin can be used as a weak hedge against inflation and stock market downturns and as a good hedge against exchange rate depreciation. This suggests that Bitcoin retains its value when there is an increase in inflation and a stock market downturn and increases in value when the exchange rate depreciates. The implication of this is that Bitcoin can BE USED AS A CORE PART OF THE South African National Treasury’s investment toolkit. , Thesis (MCom) -- Faculty of Commerce, Economics and Economic History, 2022
- Full Text:
- Date Issued: 2022-10-14
Export diversification, export specialization and economic growth in G20 countries
- Authors: Siswana, Sinesipho
- Date: 2021-04
- Subjects: International economic relations , Macroeconomics , Economics
- Language: English
- Type: Master's theses , text
- Identifier: http://hdl.handle.net/10948/52621 , vital:43693
- Description: This study sought out to empirically investigate whether it is export diversification or export concentration that would help achieve and sustain higher economic growth in the G20 countries using data over the period of 1995 to 2017. The empirical analysis uses the Autoregressive Distributed Lag (ARDL) model within a Pooled Mean Group (PMG) to evaluate the existence of a long run cointegration and as a baseline for examining whether the relationship between export diversification (concentration) and growth is nonlinear through a Nonlinear Autoregressive Distributed Lag (NARDL) model. The ARDL model confirms that the is a long run cointegration between the variables where both export diversification and concentration have a positive impact on growth. On the other hand, the NARDL model confirms that the relationship between export diversification and growth in the G20 countries is a nonlinear where a positive change in diversification has a negative effect on growth, while negative changes have a positive effect, thus, diversification has a negative effect on growth. The NARDL results for concentration do not confirm any nonlinearities, this implies that both positive and negative changes in concentration have negative and statistically insignificant effects on growth. Both the panel ARDL and panel NARDL model are superior models that can account and correct any serial autocorrelation that may exist, thus making the results robust enough. Seemingly, that both export diversification and concentration have a negative effect on growth and this effect may be attributed to the sample being a mixture of developed and developing economies, the study further analysed the effect on to sub-samples (G7 and non-G7). The results for the G7 panel show that there is no evidence of a nonlinear relationship between growth and concentration, as a positive change has a positive effect and a negative change has a negative effect. Overall, the G7 NARDL results are show that concentration will accelerate growth in developed economies in the long run more than diversification. The results for the non-G7 panel the NARDL results show that there is a linear relationship between export diversification (concentration) and growth. The overall, results of the study suggest, that for the G20 countries developmental levels need to be considered in order to know the correct export composition strategy to adopt in order to accelerate growth. With that said, in developed countries like the G7 export concentration would be beneficial in accelerating growth, while in developing countries like the non-G7 countries export diversification would accelerate growth. , Thesis (MCom) -- Faculty of Business and Economic Sciences , Economics, 2021
- Full Text:
- Date Issued: 2021-04
- Authors: Siswana, Sinesipho
- Date: 2021-04
- Subjects: International economic relations , Macroeconomics , Economics
- Language: English
- Type: Master's theses , text
- Identifier: http://hdl.handle.net/10948/52621 , vital:43693
- Description: This study sought out to empirically investigate whether it is export diversification or export concentration that would help achieve and sustain higher economic growth in the G20 countries using data over the period of 1995 to 2017. The empirical analysis uses the Autoregressive Distributed Lag (ARDL) model within a Pooled Mean Group (PMG) to evaluate the existence of a long run cointegration and as a baseline for examining whether the relationship between export diversification (concentration) and growth is nonlinear through a Nonlinear Autoregressive Distributed Lag (NARDL) model. The ARDL model confirms that the is a long run cointegration between the variables where both export diversification and concentration have a positive impact on growth. On the other hand, the NARDL model confirms that the relationship between export diversification and growth in the G20 countries is a nonlinear where a positive change in diversification has a negative effect on growth, while negative changes have a positive effect, thus, diversification has a negative effect on growth. The NARDL results for concentration do not confirm any nonlinearities, this implies that both positive and negative changes in concentration have negative and statistically insignificant effects on growth. Both the panel ARDL and panel NARDL model are superior models that can account and correct any serial autocorrelation that may exist, thus making the results robust enough. Seemingly, that both export diversification and concentration have a negative effect on growth and this effect may be attributed to the sample being a mixture of developed and developing economies, the study further analysed the effect on to sub-samples (G7 and non-G7). The results for the G7 panel show that there is no evidence of a nonlinear relationship between growth and concentration, as a positive change has a positive effect and a negative change has a negative effect. Overall, the G7 NARDL results are show that concentration will accelerate growth in developed economies in the long run more than diversification. The results for the non-G7 panel the NARDL results show that there is a linear relationship between export diversification (concentration) and growth. The overall, results of the study suggest, that for the G20 countries developmental levels need to be considered in order to know the correct export composition strategy to adopt in order to accelerate growth. With that said, in developed countries like the G7 export concentration would be beneficial in accelerating growth, while in developing countries like the non-G7 countries export diversification would accelerate growth. , Thesis (MCom) -- Faculty of Business and Economic Sciences , Economics, 2021
- Full Text:
- Date Issued: 2021-04
National debt and sovereign credit ratings
- Authors: Orsmond, Daniel
- Date: 2019
- Subjects: Debts, Public -- South Africa , Credit ratings -- South Africa , Gross domestic product -- Africa , Inflation (Finance) -- Africa , Economic development -- South Africa , Economic history , Macroeconomics , Moody's Investors Service , Standard and Poor's Ratings Services , Fitch Ratings (Firm)
- Language: English
- Type: text , Thesis , Masters , MCom
- Identifier: http://hdl.handle.net/10962/115160 , vital:34083
- Description: In recent years South Africa’s foreign and local denominated debt has been downgraded by the three major global credit agencies, Moody’s, Standard and Poor’s (S&P) and Fitch. The foreign debt has been downgraded to speculative grade or ‘junk’ status by all three agencies. Local debt has been downgraded to ‘junk’ by S& P and Fitch, but Moody’s currently maintains local debt at the lowest level of investment grade. Many economists believe that South Africa’s rapidly rising debt levels are the major contributor to the decisions to downgrade South Africa’s debt. Yet many countries with higher levels of debt continue to be rated investment grade. Clearly, factors other than the actual level of debt are important in determining the credit rating agencies’ rating decisions. The literature suggests several variables are important in determining a country’s sovereign credit rating. These variables include not just the ratio of government debt to gross domestic product, but also a country’s real growth rate, inflation, gross domestic product per capita, external balance to gross domestic product, default history and the level of economic development. In examining the proposition that it is not a country’s debt level per se that matters, but rather the dynamics surrounding that debt, this research also includes three additional variables that are not usually mentioned in the literature. These, based on van der Merwe (1993), are the real GDP growth rate less the real interest rate, the ratio of the fiscal balance to GDP, and the ratio of government interest payments to government expenditure. The purpose of this addition is to examine whether rather than a country’s debt level (debt to GDP variable), it is the sustainability of a country’s ability to service debt, as indicated by the three additional ‘debt dynamic’ variables, that is most important when determining sovereign credit ratings. Panel data analysis for a sample of 12 countries over the period 1996Q1 to 2017Q4 indicates that of the broad macroeconomic variables mentioned in the literature, government debt to GDP, the real growth rate, inflation (cpi), and default history are all statistically significant, with the coefficients having the correct signs in all specification of the model, with the exception of the real growth rate in Models 2 and 3. With regards to the debt dynamic variables, the real growth rate less the real interest rate, as well as the interest payments to government expenditure variables are found to be significant determinants of sovereign credit ratings. Thus, the findings of the research suggest that the level of debt alone is an inadequate determinant of sovereign credit ratings. The dynamics of debt along with other macroeconomic variables are also important determinants of a country’s credit rating. Concerning policy recommendations, it is evident that debt sustainability is important for sovereign credit ratings. Evidence of the direct importance of economic growth in determining credit ratings is mixed, but growth is a key driver of debt dynamics variables and therefore of ratings. This suggests that policy should focus on stimulating growth to reduce the gap between real growth and real interest rates as well as increasing the denominator of the debt to GDP ratio and increase the size of the tax base, which would improve government’s ability to service the interest payments on its debt.
- Full Text:
- Date Issued: 2019
- Authors: Orsmond, Daniel
- Date: 2019
- Subjects: Debts, Public -- South Africa , Credit ratings -- South Africa , Gross domestic product -- Africa , Inflation (Finance) -- Africa , Economic development -- South Africa , Economic history , Macroeconomics , Moody's Investors Service , Standard and Poor's Ratings Services , Fitch Ratings (Firm)
- Language: English
- Type: text , Thesis , Masters , MCom
- Identifier: http://hdl.handle.net/10962/115160 , vital:34083
- Description: In recent years South Africa’s foreign and local denominated debt has been downgraded by the three major global credit agencies, Moody’s, Standard and Poor’s (S&P) and Fitch. The foreign debt has been downgraded to speculative grade or ‘junk’ status by all three agencies. Local debt has been downgraded to ‘junk’ by S& P and Fitch, but Moody’s currently maintains local debt at the lowest level of investment grade. Many economists believe that South Africa’s rapidly rising debt levels are the major contributor to the decisions to downgrade South Africa’s debt. Yet many countries with higher levels of debt continue to be rated investment grade. Clearly, factors other than the actual level of debt are important in determining the credit rating agencies’ rating decisions. The literature suggests several variables are important in determining a country’s sovereign credit rating. These variables include not just the ratio of government debt to gross domestic product, but also a country’s real growth rate, inflation, gross domestic product per capita, external balance to gross domestic product, default history and the level of economic development. In examining the proposition that it is not a country’s debt level per se that matters, but rather the dynamics surrounding that debt, this research also includes three additional variables that are not usually mentioned in the literature. These, based on van der Merwe (1993), are the real GDP growth rate less the real interest rate, the ratio of the fiscal balance to GDP, and the ratio of government interest payments to government expenditure. The purpose of this addition is to examine whether rather than a country’s debt level (debt to GDP variable), it is the sustainability of a country’s ability to service debt, as indicated by the three additional ‘debt dynamic’ variables, that is most important when determining sovereign credit ratings. Panel data analysis for a sample of 12 countries over the period 1996Q1 to 2017Q4 indicates that of the broad macroeconomic variables mentioned in the literature, government debt to GDP, the real growth rate, inflation (cpi), and default history are all statistically significant, with the coefficients having the correct signs in all specification of the model, with the exception of the real growth rate in Models 2 and 3. With regards to the debt dynamic variables, the real growth rate less the real interest rate, as well as the interest payments to government expenditure variables are found to be significant determinants of sovereign credit ratings. Thus, the findings of the research suggest that the level of debt alone is an inadequate determinant of sovereign credit ratings. The dynamics of debt along with other macroeconomic variables are also important determinants of a country’s credit rating. Concerning policy recommendations, it is evident that debt sustainability is important for sovereign credit ratings. Evidence of the direct importance of economic growth in determining credit ratings is mixed, but growth is a key driver of debt dynamics variables and therefore of ratings. This suggests that policy should focus on stimulating growth to reduce the gap between real growth and real interest rates as well as increasing the denominator of the debt to GDP ratio and increase the size of the tax base, which would improve government’s ability to service the interest payments on its debt.
- Full Text:
- Date Issued: 2019
The impact of external shocks on economic performance and policy responses in Zimbabwe
- Authors: Manda, Smart
- Date: 2017
- Subjects: Macroeconomics , Economic forecasting -- Zimbabwe Economic development -- Zimbabwe Zimbabwe -- Economic conditions -- 21st century Developing countries -- Economic conditions
- Language: English
- Type: Thesis , Doctoral , DPhil
- Identifier: http://hdl.handle.net/10948/18354 , vital:28626
- Description: This study analysed the impact of external shocks on macroeconomic performance and policy responses in Zimbabwe for the period spanning from 2009 to 2016. The study was motivated by the rising global economic vulnerabilities following the global economic and financial crisis experienced between 2007 and 2009. The study was also in response to the concern by the Zimbabwean government that external shocks had become increasingly important in influencing macroeconomic developments in Zimbabwe. In view of the intensifying debate on external shocks, the study, therefore, sought to understand the impact of external shocks on economic performance and policy responses in Zimbabwe. The study contributes to empirical literature by assessing the relative contribution of external shocks in explaining business cycles, the main transmission mechanisms of the macroeconomic shocks in Zimbabwe, the extent to which shocks in Zimbabwe were synchronised with shocks affecting other regional countries and how effective were government policies in mitigating the impact of shocks in Zimbabwe. Zimbabwe is a fascinating case study given its unique exchange rate arrangements under the multiple currency system. The application of the micro-founded DSGE models in addition to the Structural Vector Autoregressive (SVAR) models is also a novel approach. The results of the DSGE model demonstrated that foreign output shocks and imported inflation were not important in accounting for developments in endogenous variables in Zimbabwe. In addition, the domestic output and inflation did not respond to a domestic monetary policy shock. However, the international commodity price was found to have some bearing on domestic output. Foreign interest rates had a positive effect on domestic interest rates. On the other hand, domestic variables did not respond to domestic interest rate movements. This effectively implies that whilst foreign interest rates influenced domestic interest rates, domestic interest rates did not influence real economic activity. In other words, the transmission mechanism was not from domestic monetary policy to real economic variables. The results of the SVAR model also confirmed the results obtained from the DSGE model. The results from the analysis of the synchronicity of shocks also provided very important information on the dynamics of external shocks and economic performance in Zimbabwe. These results pointed to the fact that although countries in the region experienced similar shocks, economic fluctuations were not synchronised implying that the shocks could be emanating from the domestic sources rather than external sources. The results from the analysis of the role of external shocks in explaining macroeconomic fluctuations in Zimbabwe revealed that domestic factors contribute more to macroeconomic fluctuations in Zimbabwe compared to external variables. The contribution of climatic factors to domestic output fluctuations was, however, found to have a limited or minimal impact on the economy. Regarding the monetary policy effectiveness, the study observed that there was a weak link between interest rates and output and inflation developments in Zimbabwe. The results also suggested a week link between interest rates and money supply in the economy. The results, however, suggested that international oil prices were very important in the domestic price formations, accounting for about 20 percent of the variation. The monetary policy conditional index on the other hand indicated that monetary conditions in the economy did not influence inflation and output developments, implying ineffectiveness of monetary policy. The results from the study demonstrated the fact that although external shocks do affect economic activity in Zimbabwe, domestic factors are more significant in influencing macroeconomic activity. The policy implication of the findings is that there is need to consider the domestic factors, which are more significant compared to the external factors. However, since monetary policy is not effective under the multiple currencies system, fiscal policy is important to deal with external shocks. This will also enable the economy to absorb the impact of external shocks into the economy. The policies should focus more on reducing the over-reliance on primary commodities for exports through diversification of the economy.
- Full Text:
- Date Issued: 2017
- Authors: Manda, Smart
- Date: 2017
- Subjects: Macroeconomics , Economic forecasting -- Zimbabwe Economic development -- Zimbabwe Zimbabwe -- Economic conditions -- 21st century Developing countries -- Economic conditions
- Language: English
- Type: Thesis , Doctoral , DPhil
- Identifier: http://hdl.handle.net/10948/18354 , vital:28626
- Description: This study analysed the impact of external shocks on macroeconomic performance and policy responses in Zimbabwe for the period spanning from 2009 to 2016. The study was motivated by the rising global economic vulnerabilities following the global economic and financial crisis experienced between 2007 and 2009. The study was also in response to the concern by the Zimbabwean government that external shocks had become increasingly important in influencing macroeconomic developments in Zimbabwe. In view of the intensifying debate on external shocks, the study, therefore, sought to understand the impact of external shocks on economic performance and policy responses in Zimbabwe. The study contributes to empirical literature by assessing the relative contribution of external shocks in explaining business cycles, the main transmission mechanisms of the macroeconomic shocks in Zimbabwe, the extent to which shocks in Zimbabwe were synchronised with shocks affecting other regional countries and how effective were government policies in mitigating the impact of shocks in Zimbabwe. Zimbabwe is a fascinating case study given its unique exchange rate arrangements under the multiple currency system. The application of the micro-founded DSGE models in addition to the Structural Vector Autoregressive (SVAR) models is also a novel approach. The results of the DSGE model demonstrated that foreign output shocks and imported inflation were not important in accounting for developments in endogenous variables in Zimbabwe. In addition, the domestic output and inflation did not respond to a domestic monetary policy shock. However, the international commodity price was found to have some bearing on domestic output. Foreign interest rates had a positive effect on domestic interest rates. On the other hand, domestic variables did not respond to domestic interest rate movements. This effectively implies that whilst foreign interest rates influenced domestic interest rates, domestic interest rates did not influence real economic activity. In other words, the transmission mechanism was not from domestic monetary policy to real economic variables. The results of the SVAR model also confirmed the results obtained from the DSGE model. The results from the analysis of the synchronicity of shocks also provided very important information on the dynamics of external shocks and economic performance in Zimbabwe. These results pointed to the fact that although countries in the region experienced similar shocks, economic fluctuations were not synchronised implying that the shocks could be emanating from the domestic sources rather than external sources. The results from the analysis of the role of external shocks in explaining macroeconomic fluctuations in Zimbabwe revealed that domestic factors contribute more to macroeconomic fluctuations in Zimbabwe compared to external variables. The contribution of climatic factors to domestic output fluctuations was, however, found to have a limited or minimal impact on the economy. Regarding the monetary policy effectiveness, the study observed that there was a weak link between interest rates and output and inflation developments in Zimbabwe. The results also suggested a week link between interest rates and money supply in the economy. The results, however, suggested that international oil prices were very important in the domestic price formations, accounting for about 20 percent of the variation. The monetary policy conditional index on the other hand indicated that monetary conditions in the economy did not influence inflation and output developments, implying ineffectiveness of monetary policy. The results from the study demonstrated the fact that although external shocks do affect economic activity in Zimbabwe, domestic factors are more significant in influencing macroeconomic activity. The policy implication of the findings is that there is need to consider the domestic factors, which are more significant compared to the external factors. However, since monetary policy is not effective under the multiple currencies system, fiscal policy is important to deal with external shocks. This will also enable the economy to absorb the impact of external shocks into the economy. The policies should focus more on reducing the over-reliance on primary commodities for exports through diversification of the economy.
- Full Text:
- Date Issued: 2017
Macroeconomic convergence within SADC : implications for the formation of a regional monetary union
- Authors: Johns, Michael Ryan
- Date: 2009
- Subjects: Southern African Development Community , Economic and Monetary Union , Common Monetary Area (Organization) , Economic policy -- Africa, Southern , Monetary policy -- Africa, Southern , Monetary unions , Macroeconomics
- Language: English
- Type: Thesis , Masters , MCom
- Identifier: vital:1023 , http://hdl.handle.net/10962/d1002758 , Southern African Development Community , Economic and Monetary Union , Common Monetary Area (Organization) , Economic policy -- Africa, Southern , Monetary policy -- Africa, Southern , Monetary unions , Macroeconomics
- Description: Given the growing effect that globalisation and integration has had upon economies and regions, the process of monetary union has become an increasingly topical issue in economic policy debates. This has been driven in part by the experience and successes of the European Monetary Union (EMU), which is widely perceived as beneficial to member countries. The Southern African Development Community (SADC) is an example of a group of countries that has realised that there are benefits that may arise from economic integration. This paper makes use of an interest-rate pass through model to investigate whether the pass-through of monetary policy transmission in ten SADC countries has become more similar between January 1990 and December 2007 using monthly interest rate data. This is done to determine the extent of macroeconomic convergence that prevails within SADC, and consequently establish whether the formation of a regional monetary union is feasible. The results of the empirical pass-through model were robust and show that there are certain countries that have a more efficient and similar monetary transmission process than others. In particular, the countries that form the Common Monetary Area (CMA) and the Southern African Customs Union (SACU) tend to show evidence of convergence in monetary policy transmission, especially since 2000. In addition, from analysis of the long-run pass-through, the results reveal that there is evidence that Malawi and Zambia have shown signs of convergence toward the countries that form the CMA and SACU, in terms of monetary policy transmission. The study concludes that a SADC wide monetary union is currently not feasible based on the evidence provided from the results of the pass-through analysis. Despite this, it can be tentatively suggested that the CMA may be expanded to include Botswana, Malawi and Zambia.
- Full Text:
- Date Issued: 2009
- Authors: Johns, Michael Ryan
- Date: 2009
- Subjects: Southern African Development Community , Economic and Monetary Union , Common Monetary Area (Organization) , Economic policy -- Africa, Southern , Monetary policy -- Africa, Southern , Monetary unions , Macroeconomics
- Language: English
- Type: Thesis , Masters , MCom
- Identifier: vital:1023 , http://hdl.handle.net/10962/d1002758 , Southern African Development Community , Economic and Monetary Union , Common Monetary Area (Organization) , Economic policy -- Africa, Southern , Monetary policy -- Africa, Southern , Monetary unions , Macroeconomics
- Description: Given the growing effect that globalisation and integration has had upon economies and regions, the process of monetary union has become an increasingly topical issue in economic policy debates. This has been driven in part by the experience and successes of the European Monetary Union (EMU), which is widely perceived as beneficial to member countries. The Southern African Development Community (SADC) is an example of a group of countries that has realised that there are benefits that may arise from economic integration. This paper makes use of an interest-rate pass through model to investigate whether the pass-through of monetary policy transmission in ten SADC countries has become more similar between January 1990 and December 2007 using monthly interest rate data. This is done to determine the extent of macroeconomic convergence that prevails within SADC, and consequently establish whether the formation of a regional monetary union is feasible. The results of the empirical pass-through model were robust and show that there are certain countries that have a more efficient and similar monetary transmission process than others. In particular, the countries that form the Common Monetary Area (CMA) and the Southern African Customs Union (SACU) tend to show evidence of convergence in monetary policy transmission, especially since 2000. In addition, from analysis of the long-run pass-through, the results reveal that there is evidence that Malawi and Zambia have shown signs of convergence toward the countries that form the CMA and SACU, in terms of monetary policy transmission. The study concludes that a SADC wide monetary union is currently not feasible based on the evidence provided from the results of the pass-through analysis. Despite this, it can be tentatively suggested that the CMA may be expanded to include Botswana, Malawi and Zambia.
- Full Text:
- Date Issued: 2009
A review of the actuaries' capitalisation rate from an economic perspective
- Authors: Turner, Jason
- Date: 2006
- Subjects: Macroeconomics , Keynesian economics , Insurance -- Mathematics , South Africa -- Economic conditions -- 1961-1991 , South Africa -- Economic policy
- Language: English
- Type: Thesis , Masters , MCom
- Identifier: vital:992 , http://hdl.handle.net/10962/d1002727 , Macroeconomics , Keynesian economics , Insurance -- Mathematics , South Africa -- Economic conditions -- 1961-1991 , South Africa -- Economic policy
- Description: The purpose of this paper was to evaluate if the macroeconomic change that has occurred in the South African economy since the 1980s has been significant enough to justify a re-examination of the actuaries’ capitalisation rate, due to its formulation processes dependence on the macroeconomic situation. The need for the reexamination arises from the use of the capitalisation in the calculation of lump sum awards where even a small change in the rate can have a significant impact on the value of the final award. In order to address the issue an examination of how Keynesian expectations are formulated and an examination of the Government’s macroeconomic policy was conducted to provide the foundation. On this foundation, a trend analysis of the major groups of financial instruments, as well as the current outlooks for the South African economy, was conducted to determine if there was any indication of a significant change in the macroeconomic conditions. The results of the analysis provided a compelling case for the urgent need for the actuaries’ capitalisation rate to be recalculated to account for the changed economic situation.
- Full Text:
- Date Issued: 2006
- Authors: Turner, Jason
- Date: 2006
- Subjects: Macroeconomics , Keynesian economics , Insurance -- Mathematics , South Africa -- Economic conditions -- 1961-1991 , South Africa -- Economic policy
- Language: English
- Type: Thesis , Masters , MCom
- Identifier: vital:992 , http://hdl.handle.net/10962/d1002727 , Macroeconomics , Keynesian economics , Insurance -- Mathematics , South Africa -- Economic conditions -- 1961-1991 , South Africa -- Economic policy
- Description: The purpose of this paper was to evaluate if the macroeconomic change that has occurred in the South African economy since the 1980s has been significant enough to justify a re-examination of the actuaries’ capitalisation rate, due to its formulation processes dependence on the macroeconomic situation. The need for the reexamination arises from the use of the capitalisation in the calculation of lump sum awards where even a small change in the rate can have a significant impact on the value of the final award. In order to address the issue an examination of how Keynesian expectations are formulated and an examination of the Government’s macroeconomic policy was conducted to provide the foundation. On this foundation, a trend analysis of the major groups of financial instruments, as well as the current outlooks for the South African economy, was conducted to determine if there was any indication of a significant change in the macroeconomic conditions. The results of the analysis provided a compelling case for the urgent need for the actuaries’ capitalisation rate to be recalculated to account for the changed economic situation.
- Full Text:
- Date Issued: 2006
Macroeconomic theory after the great recession of 2008: the need for a market process approach
- Authors: Le Roux, Pierre
- Subjects: Recessions , Macroeconomics , f-sa
- Language: English
- Type: text , Lectures
- Identifier: http://hdl.handle.net/10948/52919 , vital:44679
- Description: This paper sets out to reflect that contemporary schools of thought are unable to explain the great recession of 2008. The Great Recession 2007-2009 and the long, slow recovery from it serve as reminders of the difficulty of explaining business cycles. Macroeconomists of all varieties have been humbled by these events and by our inability to predict or to design policies that moderate the effects. Paul Krugman (2009) and John Cochrane (2010) are examples of how two schools of thought have struggled with the issue. Many theories of business cycles exist, without any being comprehensive; none are able to account for all important characteristics. Macroeconomic theory continues to explore stylised facts for explanatory power. The whole sub-discipline of “macroeconomics” is premised on the belief that the standard microeconomic tools are not of much use in understanding the dynamics of growth and business cycles. Even with the rational expectations revolution purporting to set macroeconomics back on microfoundations, the language of aggregate supply and demand, over-simplified versions of the Quantity Theory of Money, and the aggregative analytics of the Keynesian cross and simple models of functional finance still fill the textbooks and inform most policy debates. The neglect of capital theory in particular has removed the important elements of time and money from Macroeconomics. The main approaches to Macroeconomics are compared and their lack of a firm micro foundation exposed. The dissatisfaction with macroeconomics can be resolved by taking a more capitalbased approach. This will allow for macro elements such as time and money while reintroducing the entrepreneur into macroeconomic theory. Relative prices, especially intertemporal prices can then again take their rightful place in explaining the business cycle.
- Full Text:
- Authors: Le Roux, Pierre
- Subjects: Recessions , Macroeconomics , f-sa
- Language: English
- Type: text , Lectures
- Identifier: http://hdl.handle.net/10948/52919 , vital:44679
- Description: This paper sets out to reflect that contemporary schools of thought are unable to explain the great recession of 2008. The Great Recession 2007-2009 and the long, slow recovery from it serve as reminders of the difficulty of explaining business cycles. Macroeconomists of all varieties have been humbled by these events and by our inability to predict or to design policies that moderate the effects. Paul Krugman (2009) and John Cochrane (2010) are examples of how two schools of thought have struggled with the issue. Many theories of business cycles exist, without any being comprehensive; none are able to account for all important characteristics. Macroeconomic theory continues to explore stylised facts for explanatory power. The whole sub-discipline of “macroeconomics” is premised on the belief that the standard microeconomic tools are not of much use in understanding the dynamics of growth and business cycles. Even with the rational expectations revolution purporting to set macroeconomics back on microfoundations, the language of aggregate supply and demand, over-simplified versions of the Quantity Theory of Money, and the aggregative analytics of the Keynesian cross and simple models of functional finance still fill the textbooks and inform most policy debates. The neglect of capital theory in particular has removed the important elements of time and money from Macroeconomics. The main approaches to Macroeconomics are compared and their lack of a firm micro foundation exposed. The dissatisfaction with macroeconomics can be resolved by taking a more capitalbased approach. This will allow for macro elements such as time and money while reintroducing the entrepreneur into macroeconomic theory. Relative prices, especially intertemporal prices can then again take their rightful place in explaining the business cycle.
- Full Text:
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