Management of fiscal and monetary policies interdependence in South African economy: A Bayesian VAR approach

Sanusi, Kazeem Abimbola; Eita, Joel Hinaunye; Meyer, Daniel

doi:10.35683/jcm21035.122

Cited by 1 publication

(3 citation statements)

References 18 publications

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“…The effects of tax shocks on government debt also diminish as the economy converges back to its steady state. This is consistent with findings of Mwabutwa et al (2013), Valdivia (2017 and Sanusi et al (2021). Figure 4b illustrates how different fiscal and monetary variables respond to tax shocks.…”

Section: Tax Shockssupporting

confidence: 91%

“…Furthermore, the results highlight the importance of understanding the specific characteristics of each economy when designing policies aimed at stabilizing inflation and promoting economic growth. This is consistent with Sanusi et al (2021).…”

Section: Inflation Shockssupporting

confidence: 90%

“…Their empirical findings suggest that the macroeconomic response to output growth worsens inflation, whereas the response of money growth to the exchange rate shows less worsening of inflation variability. Sanusi et al (2021) examined the management and interaction aspects between fiscal and monetary policies in South Africa using a Bayesian vector autoregressive model (BVA) using monthly data on the inflation rate, interest rate, money supply, tax revenue, government spending and government debt for the period 2009-2019 were sourced from the South African Reserve Bank. Their findings show that positive shocks to the money supply prompt monetary authority to raise the economy's interest rate, which increases the bank rate.…”

Section: Review Of Literaturementioning

confidence: 99%

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Fiscal and Monetary Policies Interactions in Nigeria and South Africa: Dynamic Stochastic General Equilibrium Approach

Sanusi,

Dickason-Koekemoer

2023

IJEFI

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The interaction between fiscal and monetary policies in achieving macroeconomic goals has been a subject of debate, particularly on whether they complement or substitute each other. This issue arises when both policy authorities are independent of each other. This study aims to revisit the interaction of fiscal and monetary policies in Nigeria and South Africa using a dynamic stochastic general equilibrium model (DSGE) and calibration technique. The model consists of 20 equations that illustrate the behaviour of endogenous variables. The parameters are obtained from relevant DSGE literature and economic intuitions about the two economies. The findings reveal that fiscal and monetary policy variables interact in both economies. Inflation responds to fiscal policy shocks such as government spending, revenue and borrowing shocks. Monetary authorities’ decisions such as interest rates and inflation also affect fiscal policy variables. However, the performance of monetary and fiscal policy variables is better in South Africa than in Nigeria. The study recommends closer coordination between the monetary and fiscal authorities in both economies to resolve policy design and implementation issues. Government monitoring and assessment units should also be strengthened to track the implementation and delivery of policies decided upon at coordination meetings.