Credit extension in South Africa: an analysis of the impact of interest rates and income levels on the level of household debt
- Widdop, James Stuart Hailstones
- Authors: Widdop, James Stuart Hailstones
- Date: 2017
- Language: English
- Type: Thesis , Masters , MCom
- Identifier: http://hdl.handle.net/10962/4988 , vital:20750
- Description: The recent growth in the unsecured lending market and the bankruptcy of African Bank Investments Limited have brought to light concerns regarding credit extension and the level of household indebtedness in South Africa. This study seeks to investigate the relevant aspects of credit extension in both the secured and unsecured lending markets by firstly analysing contemporary literature and then conducting a more formal empirical analysis. A VAR model is estimated to examine the effects household disposable income and interest rates have on the level of household debt in South Africa for the period 1995Q1-2015Q3. The empirical results indicate that there is no significant deterministic relationship between household disposable income and household debt. However, the results show that such a relationship does exist between interest rate and household debt. Finally, impulse response functions obtained from the VAR estimation are examined which indicate that both shocks too household disposable income and interest rates effect the level of household debt, but that this effect returns to equilibrium within six periods.
- Full Text:
- Authors: Widdop, James Stuart Hailstones
- Date: 2017
- Language: English
- Type: Thesis , Masters , MCom
- Identifier: http://hdl.handle.net/10962/4988 , vital:20750
- Description: The recent growth in the unsecured lending market and the bankruptcy of African Bank Investments Limited have brought to light concerns regarding credit extension and the level of household indebtedness in South Africa. This study seeks to investigate the relevant aspects of credit extension in both the secured and unsecured lending markets by firstly analysing contemporary literature and then conducting a more formal empirical analysis. A VAR model is estimated to examine the effects household disposable income and interest rates have on the level of household debt in South Africa for the period 1995Q1-2015Q3. The empirical results indicate that there is no significant deterministic relationship between household disposable income and household debt. However, the results show that such a relationship does exist between interest rate and household debt. Finally, impulse response functions obtained from the VAR estimation are examined which indicate that both shocks too household disposable income and interest rates effect the level of household debt, but that this effect returns to equilibrium within six periods.
- Full Text:
Malawi’s trilemma: monetary policy independence, exchange rate stability and financial integration
- Authors: Kamamkhudza, Charity
- Date: 2017
- Subjects: Malawi -- Economic conditions , Economic policy -- Malawi , Monetary policy -- Malawi , Foreign exchange rates -- Malawi
- Language: English
- Type: Thesis , Masters , MCom
- Identifier: http://hdl.handle.net/10962/41634 , vital:25112
- Description: Malawi has, in the last few decades, undergone several reforms relating to monetary, exchange rate and financial integration policies in a bid to achieve sustainable economic growth. Despite these reforms, however, the country has barely attained desirable macroeconomic performance. This study sets out to establish if the need for these policy reforms is due to the fact that the country is constrained from the simultaneous achievement of optimal levels of monetary policy independence, exchange rate stability and financial integration, as postulated by the ‘trilemma’. The trilemma is evaluated using an approach introduced by Aizenman et al. (2008), in which the Ordinary Least Squares (OLS) method is applied to a model in which a constant is regressed on indices constructed for the policy intermediate goals; the results indicate that the trilemma is a binding constraint in Malawi and that the largest trade-off is between exchange rate stability and financial integration. Given these constraints, the study also considers the combination of the trilemma intermediate policy goals that has been dominant in the country in the last three decades, using predicted values from the model and a graphical analysis to explore this objective. The analysis reveals that Malawi has, on average, prioritised exchange rate stability and monetary policy independence at the expense of financial integration. The study also assesses how the trilemma intermediate policy goals affect macroeconomic performance, specifically regarding output growth rate and inflation. The results reveal that exchange rate stability is associated with faster output growth, financial integration is associated with higher inflation, and that monetary policy independence is not a significant factor. The results emphasise the importance of consistent stability of the exchange rate if Malawi is to achieve faster and sustainable economic growth. Given this, policy makers must be cautious, as the current floating exchange rate regime, combined with financial integration, could lead to slow growth and high inflation.
- Full Text:
- Authors: Kamamkhudza, Charity
- Date: 2017
- Subjects: Malawi -- Economic conditions , Economic policy -- Malawi , Monetary policy -- Malawi , Foreign exchange rates -- Malawi
- Language: English
- Type: Thesis , Masters , MCom
- Identifier: http://hdl.handle.net/10962/41634 , vital:25112
- Description: Malawi has, in the last few decades, undergone several reforms relating to monetary, exchange rate and financial integration policies in a bid to achieve sustainable economic growth. Despite these reforms, however, the country has barely attained desirable macroeconomic performance. This study sets out to establish if the need for these policy reforms is due to the fact that the country is constrained from the simultaneous achievement of optimal levels of monetary policy independence, exchange rate stability and financial integration, as postulated by the ‘trilemma’. The trilemma is evaluated using an approach introduced by Aizenman et al. (2008), in which the Ordinary Least Squares (OLS) method is applied to a model in which a constant is regressed on indices constructed for the policy intermediate goals; the results indicate that the trilemma is a binding constraint in Malawi and that the largest trade-off is between exchange rate stability and financial integration. Given these constraints, the study also considers the combination of the trilemma intermediate policy goals that has been dominant in the country in the last three decades, using predicted values from the model and a graphical analysis to explore this objective. The analysis reveals that Malawi has, on average, prioritised exchange rate stability and monetary policy independence at the expense of financial integration. The study also assesses how the trilemma intermediate policy goals affect macroeconomic performance, specifically regarding output growth rate and inflation. The results reveal that exchange rate stability is associated with faster output growth, financial integration is associated with higher inflation, and that monetary policy independence is not a significant factor. The results emphasise the importance of consistent stability of the exchange rate if Malawi is to achieve faster and sustainable economic growth. Given this, policy makers must be cautious, as the current floating exchange rate regime, combined with financial integration, could lead to slow growth and high inflation.
- Full Text:
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