ASSESSING MONETARY POLICY IN SOUTH AFRICA IN A DATA‐RICH ENVIRONMENT

Alain Ntumba Kabundi · Nonhlanhla Ngwenya

25 citations0/0 files storedSouth African Journal of Economics

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Monetary Policy and Economic Impact Market Dynamics and Volatility Economic theories and models

Abstract

Abstract This paper examines the efficacy of monetary policy in the South African economy using a data‐rich framework. We use the Factor‐Augmented Vector Autoregressive (FAVAR) methodology, which contains 110 monthly variables for the period 1985:02‐2007:11. The results, based on impulse‐response functions, provide no evidence of the price puzzle observed in traditional Structural Vector Autoregressive analysis and confirm that monetary policy in South Africa is effective in stabilising prices. Unlike the traditional vector autoregressive approach, the FAVAR methodology allows further analysis of a large number of variables. Variables from real and financial variables react negatively to a contractionary monetary policy shock. Finally, we find evidence of the importance of a confidence channel transmission following a monetary policy shock.

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References

1995Inside the Black Box: The Credit Channel of Monetary Policy Transmission 2002Determining the Number of Factors in Approximate Factor Models 1989The federal funds rate and the channels of monetary transmission 1992Interpreting the macroeconomic time series facts 2005Measuring the Effects of Monetary Policy: A Factor-Augmented Vector Autoregressive (FAVAR) Approach 2009Large Bayesian vector auto regressions 2005Implications of Dynamic Factor Models for VAR Analysis 2006DSGE Models in a Data-Rich Environment

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2019Output Effects of Monetary Policy in Emerging and Developing Countries: Evidence from a Meta-Analysis 2013Important Channels of Transmission Monetary Policy Shock in South Africa 2013Measuring the effects of monetary policy in Pakistan: a factor-augmented vector autoregressive approach 2019The Transmission of Monetary Policy in South Africa Before and After the Global Financial Crisis

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