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Investigating the Bank-Lending Channel in South Africa: A VAR Approach

Author

Listed:
  • Kirsten L. Ludi

    (Department of Economics, University of Pretoria)

  • Marc Ground

    (Department of Economics, University of Pretoria)

Abstract

The monetary policy transmission mechanism can broadly be categorised into three separate channels: the interest rate channel, the credit channel and the other asset price channel. This paper seeks to examine the bank-lending channel of the credit channel of monetary policy in South Africa by making use of structural vector auto- regressions (SVAR’s). The pass-through effects of a change in the repurchase (repo) rate on bank deposits and loans and output, are tested using a parsimonious vector error correction model (PVECM). The Johansen (1988) cointegration procedure is used to test for a demand- or supply-driven bank-lending channel. In this way, the validity and effectiveness of the monetary policy regime in South Africa is tested and evaluated.

Suggested Citation

  • Kirsten L. Ludi & Marc Ground, 2006. "Investigating the Bank-Lending Channel in South Africa: A VAR Approach," Working Papers 200604, University of Pretoria, Department of Economics.
    • Handle: RePEc:pre:wpaper:200604
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    References listed on IDEAS

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    Cited by:

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    3. Milan Eliskovski, 2018. "Investigating credit transmission mechanism in the Republic of Macedonia: evidence from Vector Error Correction Model," Working Papers 2018-02, National Bank of the Republic of North Macedonia.
    4. Rangan Gupta & Josine Uwilingiye, 2008. "Measuring The Welfare Cost Of Inflation In South Africa," South African Journal of Economics, Economic Society of South Africa, vol. 76(1), pages 16-25, March.
    5. Rangan Gupta & Moses M. Sichei, 2006. "A Bvar Model For The South African Economy," South African Journal of Economics, Economic Society of South Africa, vol. 74(3), pages 391-409, September.
    6. Sonali Das & Rangan Gupta & Patrick Kanda & Monique Reid & Christian Tipoy & Mulatu Zerihun, 2014. "Real interest rate persistence in South Africa: evidence and implications," Economic Change and Restructuring, Springer, vol. 47(1), pages 41-62, February.
    7. Gupta, Rangan & Jurgilas, Marius & Kabundi, Alain, 2010. "The effect of monetary policy on real house price growth in South Africa: A factor-augmented vector autoregression (FAVAR) approach," Economic Modelling, Elsevier, vol. 27(1), pages 315-323, January.
    8. Matousek, Roman & Solomon, Helen, 2018. "Bank lending channel and monetary policy in Nigeria," Research in International Business and Finance, Elsevier, vol. 45(C), pages 467-474.
    9. Yu Hsing & Wen-jen Hsieh, 2014. "Test of the Bank Lending Channel for a BRICS Country," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 4(8), pages 1016-1023, August.
    10. Ekundayo P. Mesagan & O. Yasiru Alimi & K. Adekunle Adebiyi, 2018. "Population Growth, Energy Use, Crude Oil Price, and the Nigerian Economy," Economic Studies journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 2, pages 115-132.
    11. Riané de Bruyn & Rangan Gupta & Lardo Stander, 2013. "Testing the Monetary Model for Exchange Rate Determination in South Africa: Evidence from 101 Years of Data," Contemporary Economics, University of Economics and Human Sciences in Warsaw., vol. 7(1), March.
    12. Amusa, Kafayat & Gupta, Rangan & Karolia, Shaakira & Simo-Kengne, Beatrice D., 2013. "The long-run impact of inflation in South Africa," Journal of Policy Modeling, Elsevier, vol. 35(5), pages 798-812.

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    More about this item

    Keywords

    monetary transmission mechanism; bank-lending channel; VAR; VECM; Johansen cointegration test;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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