Measuring the Financial Cycle in South Africa

Farrell, Greg; Kemp, Esti

doi:10.1111/saje.12246

Cited by 8 publications

(2 citation statements)

References 45 publications

(42 reference statements)

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“…The second strand of the literature postulates that the right policy mix between MaPP and MP is dependent on the interactions between two different cycles, namely, the business cycle and the financial cycle (Adrian and Liang 2016;Frait and Komárková 2010;Frait et al 2014;Malovana and Frait 2017;Spencer 2014). There has been an enormous amount of interest in studying the interactions between BCs and FCs, with the sole purpose of disentangling the characteristic relations and stylised features of these cycles (Borio 2014b;Borio et al 2001;Claessens et al 2011;Claessens et al 2012;Farrell and Kemp 2020). There has been a limited amount of effort devoted towards studying the interactions between BCs and FCs to enhance the understanding of the interactions between MaPP and MP and their coordination concurrently.…”

Section: Literature On Conceptual and Empirical Mattersmentioning

confidence: 99%

Macroprudential and Monetary Policy Interactions and Coordination in South Africa: Evidence from Business and Financial Cycle Synchronisation

Nyati,

Muzindutsi,

Tipoy

2023

Economies

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The article reports on the interactions and possibility of coordination between macroprudential and monetary policies in South Africa, based on business and financial cycles synchronisation. To this end, relying on financial and economic time series indicators spanning the period 2000M01–2018M12, a two-step Markov switching dynamic factor model was adopted for the measurement of composite indices, while both the dynamic conditional correlations and asymmetric generalised dynamic conditional correlations models were adopted for synchronisation analysis, together with the Metcalfe scale of coordination. The empirical evidence obtained is such that, under conditions of financial and real economic stress in South Africa, when there is crisis management rather than crisis prevention, macroprudential policy and monetary policy decisions are complementary. Therefore, there will be limited/no need for coordination between the two policy decisions. However, under normal times when there is crisis prevention rather than management, macroprudential policy and monetary policy decisions are noncomplementary; hence, the greatest degree of coordination is warranted, even though it might not be easy. Therefore, we conclude that it is possible to the coordinate the conduct of macroprudential, and monetary policies based on the synchronicity of business and financial cycles.

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Section: Literature On Conceptual and Empirical Mattersmentioning

confidence: 99%

Macroprudential and Monetary Policy Interactions and Coordination in South Africa: Evidence from Business and Financial Cycle Synchronisation

Nyati,

Muzindutsi,

Tipoy

2023

Economies

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“…Due in large part to South Africa's slow financial cycle recovery (Bosch and Koch 2020b;Farrell and Kemp 2020), we also included this measure in our model. Brown et al (2005), Christelis, Georgarakos, and Jappelli (2015) and McCarthy and McQuinn (2017b) find a positive relationship between optimistic financial expectations and the amount of debt.…”

Section: P Rob(ymentioning

confidence: 99%

Household debt and consumption dynamics A non-developed world view following the financial crisis

2021

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According to recent macroeconomic evidence (Bosch and Koch 2020b; Farrell and Kemp 2020), the global financial crisis is still impacting the South African financial landscape more than 10 years later. In an effort to better understand the effect of the financial crisis, we examine household debt dynamics, with particular attention to deleveraging, following the financial cycle peak. Our analysis is predicated on the National Income Dynamics Study, the first wave of which was conducted adjacent to the beginning of the crisis. We apply standard regression analysis finding heterogeneity in debt and deleveraging at the household level, with both an uptick in short-term debt in the early stages of the crisis and a reduction in long-term debt, primarily mortgage debt, since. Overall, deleveraging was greatest amongst higher income households with relatively larger mortgage debt-to-income ratios, although that was partially offset in households with higher mortgage repayment costs relative to income. Long-term deleveraging was also more likely amongst households with higher vehicle debt-to-income ratios, but lower consumer debt-to-income ratios.

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South Africa’s 2003–2013 credit boom and bust: Lessons for macroprudential policy

Hollander

Havemann

2021

Economic History of Developing Regions

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We evaluate South African financial stability policy from 2003 to 2013 the country's most significant credit boom and bust cycle. This cycle overlapped with both rising bank capital adequacy ratios and the global financial crisis of 2007/8. We use a dynamic stochastic general equilibrium model to identify South African Reserve Bank (SARB) interventions and run counterfactual policy scenarios. We document two instances of policy inaction. Our counterfactual scenarios suggest that, with the benefit of hindsight, the SARB took the correct steps to raise capital requirements during the credit boom, but could have persisted with raising capital requirements for longer (past 2004), and could have adopted a looser policy stance after the global financial crisis to mitigate the credit bust. Our findings reaffirm the importance of counter-cyclical action, the usefulness of bank capital as a buffer against unexpected shocks to build financial sector resilience, and the need for independent but close coordination between monetary and macroprudential policy. In addition, because of structural differences between household and firm credit, the SARB should consider buttressing the uniform countercyclical capital buffer with sector-specific capital requirements.

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Measuring the Financial Cycle in South Africa

Cited by 8 publications

References 45 publications

Macroprudential and Monetary Policy Interactions and Coordination in South Africa: Evidence from Business and Financial Cycle Synchronisation

Macroprudential and Monetary Policy Interactions and Coordination in South Africa: Evidence from Business and Financial Cycle Synchronisation

Household debt and consumption dynamics A non-developed world view following the financial crisis

South Africa’s 2003–2013 credit boom and bust: Lessons for macroprudential policy

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