Bank credit extension to the private sector and inflation in South Africa
- Authors: Dlamini, Samuel Nkosinathi
- Date: 2009
- Subjects: Bank loans -- South Africa , Inflation (Finance) -- South Africa , Money supply -- South Africa , Interest rates -- South Africa , Banks and banking -- South Africa , Foreign exchange rates -- South Africa
- Language: English
- Type: Thesis , Masters , MCom
- Identifier: vital:959 , http://hdl.handle.net/10962/d1002693 , Bank loans -- South Africa , Inflation (Finance) -- South Africa , Money supply -- South Africa , Interest rates -- South Africa , Banks and banking -- South Africa , Foreign exchange rates -- South Africa
- Description: This study investigates the contribution of bank credit extension to the private sector to inflation in South Africa, covering the period 1970:1-2006:4. The long-run impact of bank credit on inflation is investigated by means of the Johansen co integration model. The short-run ynamics of the inflation is subsequently modelled by means of the Vector Error Correction Model (VECM). Using the Johansen methodology, the study identifies two co integrating equations linking inflation and its eterminants. The results suggest that the long-run relationship between inflation and bank credit to the private sector is negative and statistically significant at 10% level. The determinants that are significant at 5% level are: money supply, real gross domestic product, the money market rate, rand/dollar exchange rate and imports. The results are consistent with previous findings. The speed of adjustment in response to deviation from the equilibrium path was found to be negative at 10.56% per quarter, which is consistent with findings by Ohnsorge and Oomes (2003) for Russia. Both the signs and the magnitude of the coefficients suggest that the co integrating vector describes a long-run inflation equation. The impulse response functions confirm the theoretical expectations except for the import prices. The most persistent and significant shocks observed are on impulse response functions of money supply and bank credit to the private sector. The variance decomposition results also suggest that inflation responds quicker to innovations from money supply and the money market rate. The overall results provide evidence that the surge in inflation is associated with an increase in money supply as well as the instability in exchange rate. The effects of exchange rate fluctuation on inflation are reflected through changes in import prices. Based on the results we conclude that an increase in bank credit during the period 1970:1-2006:4 had a negative mpact on inflation in South Africa.
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- Date Issued: 2009
The impact of real exchange rates on economic growth: a case study of South Africa
- Authors: Sibanda, Kin
- Date: 2012
- Subjects: Economic development -- South Africa , Foreign exchange -- South Africa , Interest rates -- South Africa , Money supply -- South Africa , Free trade -- South Africa , Saving and investment -- South Africa , Devaluation of currency -- South Africa , Currency question -- South Africa , South Africa -- Economic policy
- Language: English
- Type: Thesis , Masters , M Com
- Identifier: vital:11469 , http://hdl.handle.net/10353/d1007129 , Economic development -- South Africa , Foreign exchange -- South Africa , Interest rates -- South Africa , Money supply -- South Africa , Free trade -- South Africa , Saving and investment -- South Africa , Devaluation of currency -- South Africa , Currency question -- South Africa , South Africa -- Economic policy
- Description: This study examined the impact of real exchange rates on economic growth in South Africa. The study used quarterly time series data for the period of 1994 to 2010. The Johansen cointegration and vector error correction model was used to determine the impact of real exchange on economic growth in South Africa. The explanatory variables in this study were real exchange rates, real interest rates, money supply, trade openness and gross fixed capital formation. Results from this study revealed that real exchange rates, gross fixed capital formation and real interest rates have a positive long run impact on economic growth, while money supply and trade openness have a negative long run impact on economic growth in South Africa. From the regression results, it was noted that undervaluation of the currency significantly hampers growth in the long run, whilst it significantly enhances economic growth in the short run. As such, the policy of depreciating the exchange rates to achieve higher growth rates is only effective in the short run and is not sustainable in the long run. Based on the findings of this study, the researcher recommended that misalignment (overvaluation and undervaluation) of the currency should be avoided at all costs. In addition, the results of the study showed that interest rates also have a significant impact on growth and since interest rates have a bearing on the exchange rate, it was recommended that the current monetary policy in South Africa should be maintained.
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- Date Issued: 2012