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Periodical article Periodical article Leiden University catalogue Leiden University catalogue WorldCat catalogue WorldCat
Title:The cyclicality of monetary and fiscal policy in South Africa since 1994
Authors:Du Plessis, Stan
Smit, BenISNI
Sturzenegger, FedericoISNI
Year:2007
Periodical:South African Journal of Economics
Volume:75
Issue:3
Pages:391-411
Language:English
Geographic term:South Africa
Subjects:monetary policy
fiscal policy
External link:https://onlinelibrary.wiley.com/doi/10.1111/j.1813-6982.2007.00128.x/pdf
Abstract:This paper uses a structural vector-autoregression approach to discuss the cyclicality of fiscal and monetary policy in South Africa since 1994. There is substantial South African literature on this topic, but much disagreement remains. Though not undisputed, there is growing consensus that monetary policy has contributed to the remarkable stabilization of the South African economy over this period. The evaluation of the role of fiscal policy in stabilization has been less favourable and there is little evidence that a countercyclical fiscal stance was a priority over this period. The paper considers these issues in an empirical framework that addresses some of the shortcomings in the literature. Specifically, it constructs a structural model in contrast with the reduced form models typically used in the South African literature, incorporates the dynamic interaction between monetary and fiscal shocks on the demand side and supply shocks on the other, and avoids controversy over 'neutral' base years and the size of fiscal elasticities. The model confirms the consensus on monetary policy, finding it to have been largely countercyclical since 1994. On fiscal policy, the paper finds evidence of pro-cyclicality, especially in the more recent period, though the policy simulations suggest that the pro-cyclicality of fiscal policy has had little destabilizing impact on real output. Bibliogr., notes, ref., sum. [Journal abstract]
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