“…Following, Crowley and Hudgins (; ; ) , we apply the MODWT to the data using a two‐step procedure that extracts the crystals and the smooth trend at frequencies j = 1, …, 5, for the South African national income data, as well as the OECD data that is used to proxy foreign real GDP growth . The time‐frequency ranges for all wavelet decompositions are specified in Table 1.…”
Section: Modwt Wavelet Analysis Data and Backgroundmentioning
confidence: 99%
“…In this section, we derive an open‐economy version of the closed‐economy wavelet‐based models in Crowley and Hudgins (; ; ). For each MODWT‐decomposed variable, the equations specify the variable’s value at a given frequency range, while removing the cyclical effects at all other frequency ranges.…”
Section: Macroeconomic Model Derivationmentioning
confidence: 99%
“…Within this model, the impact of any fiscal spending is diminished based on the rational expectations of the public. Following Crowley and Hudgins (; ; ), the expected contribution from government spending to GDP is a weighted average of actual planned spending and the current trend level of spending. The model selects parameter weights so that the effectiveness of fiscal stimulation decreases as the difference between the current and initial national debt level increases .…”
Section: Macroeconomic Model Derivationmentioning
confidence: 99%
“…The model selects parameter weights so that the effectiveness of fiscal stimulation decreases as the difference between the current and initial national debt level increases . Following Kendrick and Shoukry () and Crowley and Hudgins (, ), government tax revenue and transfer payments are passively determined based on a constant net tax rate. This is consistent with evidence that fiscal policy is not driven by simple rules wherein tax rates adjust to output (Kliem and Kriwoluzky, ).…”
Section: Macroeconomic Model Derivationmentioning
confidence: 99%
“…It builds on Kendrick and Shoukry (), which first simulated jointly optimal U.S. fiscal and monetary policy within a closed economy accelerator model. The previous work done on closed economies in Crowley and Hudgins (), Crowley and Hudgins (, ) employed a similar strategy of using a wavelet technique called the Maximal Overlap Discrete Wavelet Transform (MODWT) to obtain the time‐frequency domain cyclical decomposition of quarterly U.S. or euro‐area GDP component data, and then simulated optimal fiscal policy or jointly optimal fiscal and monetary policy.…”
The balance between South African fiscal and monetary policy in an open economy context poses some interesting questions for policymakers: questions such as whether more aggressive monetary or fiscal policy will likely deliver better growth prospects in the short and medium run, and what will the consequences be for the real exchange rate and for inflation? This research applies wavelet analysis to post‐apartheid South African quarterly macroeconomic data, and uses the decomposition to simulate a large state‐space linear‐quadratic tracking model. We find that restricted fiscal policy is the best option to realise growth, leading to lower interest rates, lower inflation, real exchange depreciation and improved trade balances compared to restricted monetary policy.
“…Following, Crowley and Hudgins (; ; ) , we apply the MODWT to the data using a two‐step procedure that extracts the crystals and the smooth trend at frequencies j = 1, …, 5, for the South African national income data, as well as the OECD data that is used to proxy foreign real GDP growth . The time‐frequency ranges for all wavelet decompositions are specified in Table 1.…”
Section: Modwt Wavelet Analysis Data and Backgroundmentioning
confidence: 99%
“…In this section, we derive an open‐economy version of the closed‐economy wavelet‐based models in Crowley and Hudgins (; ; ). For each MODWT‐decomposed variable, the equations specify the variable’s value at a given frequency range, while removing the cyclical effects at all other frequency ranges.…”
Section: Macroeconomic Model Derivationmentioning
confidence: 99%
“…Within this model, the impact of any fiscal spending is diminished based on the rational expectations of the public. Following Crowley and Hudgins (; ; ), the expected contribution from government spending to GDP is a weighted average of actual planned spending and the current trend level of spending. The model selects parameter weights so that the effectiveness of fiscal stimulation decreases as the difference between the current and initial national debt level increases .…”
Section: Macroeconomic Model Derivationmentioning
confidence: 99%
“…The model selects parameter weights so that the effectiveness of fiscal stimulation decreases as the difference between the current and initial national debt level increases . Following Kendrick and Shoukry () and Crowley and Hudgins (, ), government tax revenue and transfer payments are passively determined based on a constant net tax rate. This is consistent with evidence that fiscal policy is not driven by simple rules wherein tax rates adjust to output (Kliem and Kriwoluzky, ).…”
Section: Macroeconomic Model Derivationmentioning
confidence: 99%
“…It builds on Kendrick and Shoukry (), which first simulated jointly optimal U.S. fiscal and monetary policy within a closed economy accelerator model. The previous work done on closed economies in Crowley and Hudgins (), Crowley and Hudgins (, ) employed a similar strategy of using a wavelet technique called the Maximal Overlap Discrete Wavelet Transform (MODWT) to obtain the time‐frequency domain cyclical decomposition of quarterly U.S. or euro‐area GDP component data, and then simulated optimal fiscal policy or jointly optimal fiscal and monetary policy.…”
The balance between South African fiscal and monetary policy in an open economy context poses some interesting questions for policymakers: questions such as whether more aggressive monetary or fiscal policy will likely deliver better growth prospects in the short and medium run, and what will the consequences be for the real exchange rate and for inflation? This research applies wavelet analysis to post‐apartheid South African quarterly macroeconomic data, and uses the decomposition to simulate a large state‐space linear‐quadratic tracking model. We find that restricted fiscal policy is the best option to realise growth, leading to lower interest rates, lower inflation, real exchange depreciation and improved trade balances compared to restricted monetary policy.
scite is a Brooklyn-based organization that helps researchers better discover and understand research articles through Smart Citations–citations that display the context of the citation and describe whether the article provides supporting or contrasting evidence. scite is used by students and researchers from around the world and is funded in part by the National Science Foundation and the National Institute on Drug Abuse of the National Institutes of Health.