- Title
- A Note on the (Continued) Ability of the Yield Curve to Forecast Economic Downturns in South Africa
- Creator
- Botha, Ferdi, Keeton, Gavin
- Subject
- To be catalogued
- Date
- 2014
- Type
- text
- Type
- article
- Identifier
- http://hdl.handle.net/10962/395994
- Identifier
- vital:69142
- Identifier
- 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.
- Format
- computer, online resource, application/pdf, 1 online resource (6 pages), pdf
- Publisher
- Wiley Online
- Language
- English
- Relation
- South African Journal of Economics, Botha, F. and Keeton, G., 2014. A Note on the (Continued) Ability of the Yield Curve to Forecast Economic Downturns in South Africa. South African Journal of Economics, 82(3), pp.468-473, South African Journal of Economics volume 82 number 3 p. 468 2014 1813-6982
- Rights
- Publisher
- Rights
- Use of this resource is governed by the terms and conditions of the Wiley Library Online Terms of Use Statement (https://onlinelibrary.wiley.com/terms-and-conditions)
- Rights
- Closed Access
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Collections
Keeton, Gavin (Prof)
Botha, Ferdi (Mr)
RU Department of Economics and Economic History
SDG 08. Decent Work and Economic Growth
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|---|---|---|---|---|---|---|---|
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