Fiscal policy developments and the minerals industry

This study analyses the reaction of the minerals industry to fiscal policy developments in South Africa. This is achieved by augmenting a Taylor rule type central bank monetary policy reaction function with Government expenditure. According to the results, an unexpected, or surprise, increase in Government expenditure causes output of the minerals industry to decrease slightly and bottom out after 9 months, where it then gradually increase and tends towards its equilibrium, or steady state, level after 17 months. Conversely, an unexpected increase in output of the minerals industry causes Government expenditure to decrease and bottom out after 13 months, where it recovers and subsequently increases before it progressively and tends towards its equilibrium, or steady state, level after 23 months. However, the effect of surprise increase in Government spending on output of the mining industry is statistically insignificant in all periods, while the effect surprise increase on output of the mining industry is statistically significant immediately and such effect lasts up to 19 months. The results are generally consistent with countercyclical fiscal policy, hence Government should continue to monitor and manage spending to support overall economic activity as well as the minerals industry.