A medium-sized, open-economy, fiscal DSGE model of South Africa

Abstract

provides economic analysis and policy advice with the aim of promoting sustainable and equitable development. The Institute began operations in 1985 in Helsinki, Finland, as the first research and training centre of the United Nations University. Today it is a unique blend of think tank, research institute, and UN agency-providing a range of services from policy advice to governments as well as freely available original research.The Institute is funded through income from an endowment fund with additional contributions to its work programme from Finland, Sweden, and the United Kingdom as well as earmarked contributions for specific projects from a variety of donors.

State-dependent fiscal multipliers and financial dynamics: An impulse response analysis by local projections for South Africa

“…The state of public finances also play an important role in South Africa's fiscal policy: results from Jooste et al (2013)'s non-linear time-varying parameter vector autoregressions (TVP-VAR) model show that the strongest multipliers were in the build-up to the 2008's global financial crisis, when South Africa run budget surpluses, and that persistent increases seem to reduce the effectiveness of spending. This is in line with Ilzetzki (2011), who follows the methodology proposed by Favero and Giavazzi (2007) to account for debt dynamics in a set of emerging economies and concludes: 'only in the case of South Africa do debt dynamics appear to diminish the effects of fiscal policy, due to future policy reversals, but this effect is not statistically significant' (Ilzetzki 2011: 29) Moreover, Kemp and Hollander (2020) show that a spending shock results in a persistent deviation of debt from its steady-state level and that cuts in government consumption combined with tax increases present the most effective instrument for fiscal consolidation.…”

“…By extending the framework, he also finds that, when the spending shock is associated to higher interest rates, the response of output and consumption will be milder. Kemp and Hollander (2020) extend a fiscal DSGE to an open-economy framework and show that spending multipliers are indeed smaller in open-economy settings. The same result was achieved by Jooste et al (2013) in a SVEC model extended to include an uncovered interest parity condition.…”

Fiscal policy in times of fiscal stress: Or what to do when r > g

“…To evaluate different policy options for fiscal sustainability we use a dynamic stochastic general equilibrium (DSGE) framework, based on Kemp and Hollander (2020). 24 We use South African data over the period 1994-2019 to estimate, with Bayesian methods, the structural parameters and shocks in our model.…”

The macroeconomic effect of fiscal policy in South Africa: A narrative analysis

“…Studies on macroeconomic effects of fiscal policy in South Africa have mainly focused on exploring different empirical methodologies and theoretical or macro-econometric models. 3 Studies based on macro-econometric and theoretical dynamic stochastic general equilibrium (DSGE) models include Akanbi (2013) and Kemp and Hollander (2020), respectively. The former finds that when there are structural supply constraints in the economy, as has been the case for South Africa, tax-based fiscal policy is more effective than government expenditure-based policy.…”