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The Transmission of Monetary Policy in South Africa Before and After the Global Financial Crisis

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  • Alain Kabundi
  • Mpho Rapapali

Abstract

This paper examines whether the transmission mechanism of monetary policy in South Africa has changed after the global financial crisis (GFC). We use a Bayesian vector autoregressive (BVAR) model with Minnesota priors and 15 monthly variables, extending the system of Christiano, Eichenbaum, with Evans (1999). The benefit of the BVAR approach is that it can accommodate a large cross section of variables without running out of degrees of freedom. To identify the change in the transmission process, we divide the sample size into two subsamples, namely the pre‐GFC period (March 2001 to August 2008) and the post‐GFC period (September 2008 to February 2016). The results indicate that a change in the transmission of monetary policy occurred after the GFC. The magnitude of the effect of a monetary policy shock on output is considerably greater in the pre‐GFC period compared to the post‐GFC period. Moreover, the impact of a policy shock on inflation is not statistically significant in the post‐GFC period. The variance decomposition shows that the interest‐rate channel has possibly weakened in the post‐GFC period.

Suggested Citation

  • Alain Kabundi & Mpho Rapapali, 2019. "The Transmission of Monetary Policy in South Africa Before and After the Global Financial Crisis," South African Journal of Economics, Economic Society of South Africa, vol. 87(4), pages 464-489, December.
    • Handle: RePEc:bla:sajeco:v:87:y:2019:i:4:p:464-489
    DOI: 10.1111/saje.12238
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    Cited by:

    1. Kabundi, Alain & De Simone, Francisco Nadal, 2022. "Euro area banking and monetary policy shocks in the QE era," Journal of Financial Stability, Elsevier, vol. 63(C).
    2. Merrino, Serena, 2022. "Monetary policy and wage inequality in South Africa," Emerging Markets Review, Elsevier, vol. 53(C).
    3. Nicola Viegi & Tumisang Loate, 2021. "The transmission of monetary policy via the banks’ balance sheet – does bank size matter?," Working Papers 849, Economic Research Southern Africa.
    4. Mark K. Armah, 2024. "The effect of central bank credibility on economic growth and output volatility in inflation targeting regime," Journal of Social and Economic Development, Springer;Institute for Social and Economic Change, vol. 26(2), pages 619-640, August.
    5. Alain Kabundi & Tumisang Loate & Nicola Viegi, 2020. "Spillovers of the Conventional and Unconventional Monetary Policy from the US to South Africa," South African Journal of Economics, Economic Society of South Africa, vol. 88(4), pages 435-471, December.
    6. Josef Bajzik & Jan Janku & Simona Malovana & Klara Moravcova & Ngoc Anh Ngo, 2023. "Monetary Policy Has a Long-Lasting Impact on Credit: Evidence from 91 VAR Studies," Working Papers 2023/19, Czech National Bank.
    7. Mark Ofoi & Parmendra Sharma, 2021. "Does the Money Multiplier Hold in Pacific Island Countries? The Case of Papua New Guinea," JRFM, MDPI, vol. 14(9), pages 1-21, September.
    8. Greenwood-Nimmo, Matthew & Steenkamp, Daan & van Jaarsveld, Rossouw, 2024. "A bank-level analysis of interest rate pass-through in South Africa," Journal of Macroeconomics, Elsevier, vol. 82(C).
    9. Serena Merrino, 2021. "Wage inequality under inflationtargeting in South Africa," Working Papers 11018, South African Reserve Bank.
    10. Alain Kabundi & Asithandile Mbelu, 2021. "Estimating a time-varying financial conditions index for South Africa," Empirical Economics, Springer, vol. 60(4), pages 1817-1844, April.
    11. Pejman Peykani & Mostafa Sargolzaei & Amir Takaloo & Shahla Valizadeh, 2023. "The Effects of Monetary Policy on Macroeconomic Variables through Credit and Balance Sheet Channels: A Dynamic Stochastic General Equilibrium Approach," Sustainability, MDPI, vol. 15(5), pages 1-21, March.

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