A comparative analysis of the divisia index and the simple sum monetary aggregates for South Africa
- Authors: Moyo, Solomon Simbarashe
- Date: 2009
- Subjects: Monetary policy -- South Africa , Money supply -- South Africa , Inflation finance -- South Africa , Index numbers (Economics)
- Language: English
- Type: Thesis , Masters , MCom
- Identifier: vital:945 , http://hdl.handle.net/10962/d1002679 , Monetary policy -- South Africa , Money supply -- South Africa , Inflation finance -- South Africa , Index numbers (Economics)
- Description: The effectiveness of monetary policy in achieving its macroeconomic objectives such as price stability and economic growth depend on the monetary policy tools that are implemented by the Central Bank. Monetary aggregates are one of the tools that have been used as indicators of economic activity and as intermediate targets to achieve these economic objectives. Until recently, monetary aggregates have been questioned and criticised on their usefulness in monetary policy. This has been attributed to the economic, financial and technological developments that have distorted the relationship between monetary aggregates and major macroeconomic variables. This study investigates the relevance of monetary aggregation by comparing the traditional simple sum and Divisia index monetary aggregates which was constructed for the first time for South Africa using the Tornquist-Theil method. The Polynomial Distributed Lag model is employed to compare the performance of these monetary aggregates using their relationship with inflation and manufacturing index. Furthermore, the aggregates are compared in terms of their controllability and information content. Overall, the study found a very strong relationship between inflation and all the monetary aggregates. However, more specifically the results suggested that the Divisia indices are superior to the simple sum in terms of predicting inflation. The evidence further suggests that the Divisia aggregates provide higher information about inflation than the simple sum aggregates. Regarding the controllability of the monetary aggregates, the findings suggest that the monetary authorities can hardly control the monetary aggregates using monetary base. Finally, the relationship between manufacturing index and all the monetary aggregates was very weak.
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The term structure of interest rates and economic activity in South Africa
- Authors: Shelile, Teboho
- Date: 2007
- Subjects: Finance -- South Africa , Monetary policy -- South Africa , Interest rates -- South Africa , Economic development -- South Africa , South Africa -- Economic conditions -- 21st century
- Language: English
- Type: Thesis , Masters , MCom
- Identifier: vital:994 , http://hdl.handle.net/10962/d1002729 , Finance -- South Africa , Monetary policy -- South Africa , Interest rates -- South Africa , Economic development -- South Africa , South Africa -- Economic conditions -- 21st century
- Description: Many research papers have documented the positive relationship between the slope of the yield curve and future real economic activity in different countries and different time periods. One explanation of this link is based on monetary policy. The forecasting ability of the term spread on economic growth is based on the fact that interest rates reflect the expectations of investors about the future economic situation when deciding about their plans for consumption and investment. This thesis examined the predictive ability of the term structure of interest rates on economic activity, and the effects of different monetary policy regimes on the predictive ability of the term spread. The South African experience offers a unique opportunity to examine this issue, as the country has experienced numerous monetary policy frameworks since the 1970s. The study employed the Generalised Method Moments technique, since it is considered to be more efficient than Ordinary Least Squares. Results presented in this thesis established that the term structure successfully predicted real economic activity during the entire research period with the exception of the last sub-period (2000-2004) when using the multivariate model. In the periods of financial market liberalisation and interest rates deregulation the term structure was found to be a better predictor of economic activity in South Africa. These findings emphasise the importance of considering the prevailing economic environment in testing the term structure theory.
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