Mthuli Ncube Professor of Public Policy, Blavatnik School of Government, University of Oxford

Transcription

1 Global Growth and Financial Spillovers and the South African Macro-economy Mthuli Ncube Professor of Public Policy, Blavatnik School of Government, University of Oxford Nombulelo Gumata Economist, South African Reserve Bank and Eliphas Ndou Economist, South African Reserve Bank and Lecturer, University of the Witwatersrand, South Africa nilian

2 Contents List offigures ListofTables Preface Acknowledgements xi xvii xviii xxi 1 Introduction Stylised facts What happens to the exchange rate and asset prices at peak and low levels of global risk aversion? Do foreign and South African asset prices move together? The relationship between G7 economic growth and South African growth Correlation between South African trade variables and G7 economic growth Are South Africa's export shares following global economic growth dynamics? 8 Part I Growth Spillover Effects 2 Positive Economic Growth Spillovers of G8 Countries into South Africa Introduction Recent growth spillovers evidence Evidence on the regional sources of growth spillovers Evidence of various Channels of transmission Brief discussions of various economic linkages Trade patterns Foreign inward and outward Investment The real effective exchange rate movements and implications for competitiveness 21 v

3 vi Contents 2.4 The methodology The modified Poirson and Weber growth spillover framework The empirical analysis How does South African economic growth respond to positive GDP shocks from G8 countries? Evolution of South African growth before, during and after the recession in 2009Q1-Q3? The role of different transmission Channels To what extent are US growth shocks transmitted via third countries? Conclusion 31 3 Growth Spillovers from BRIC Countries into South Africa Introduction Dissecting the role of China on South African trade dynamics The South African exports to China The South African Imports from China The methodology The data Empirical results How did BRIC countries contribute to South African GDP growth during the recession in 2009Q1-Q3 and beyond? The role of different transmission Channels The counterfactual analysis of various Channels and third country effects Conclusion 48 Appendix A3 48 Ordering sequence 48 Part II Spillovers of Foreign Financial Shocks 4 The Spillovers of Financial Shocks from the United States into the South African Economy Introduction The relationship between US and SA financial variables The relationship between US trade with SA Recent studies 56

4 Contents vii 4.3 VAR methodology The results Discussion of the results Robustness analysis: does the sample size alter the responses? Historical contributions Conclusion 63 Appendix A4 65 Appendix B Spillovers from Euro Area Bond Yields into the South African Macro Economy Introduction Stylised facts on trade relations between South Africa and the euro area A brief review of the portfolio balance model of the exchange rate determination VAR methodology and the data Findings Responses to an unexpected positive euro area bond yield shock What are the effects of selected unexpected positive euro area bond yields shocks? Does the inclusion of the period of global uncertainty between 2008 and 2011 affect the results? The counterfactual analysis using extended sample data Conclusion 79 Appendix A5 80 Part III Capital Flow Effects and the Trade Balance 6 Capital Inflows and Asset Prices in South Africa Introduction Stylised relationships during the Inflation targeting period Recent studies VAR methodology Data What are the initial responses of variables on impact? Empirical results 89

5 viii Contents Counterfactual analysis of the role of shocks from capital inflows Did the capital inflow shock impact Imports and exports? The effects of capital inflows shocks on financial vulnerability indicators Capital inflows and credit growth Tobin's q of residential property and capital inflows Conclusion 99 Appendix A The Effects of Portfolio Inflow and Outflow on the Economy Introduction Do net portfolio flows increase asset prices returns? How do net portfolio inflows impact the exchange rate? Relationship between portfolio flows and economic growth VAR methodology Results What are the effects of a positive Inflation shock on various capital inflows and outflows? Are outflows or inflows more responsive to an inflationary shock? What are the effects of a contractionary monetary policy shock on capital flows? What are the effects of positive portfolio outflow shocks? What is the impact of positive portfolio inflow and other forms of capital inflow shocks? Counterfactual analysis of the role of portfolio flows Contributions of portfolio flows and domestic factors on asset prices Portfolio flows versus asset price and domestic factors: counterfactual economic growth analysis An unexpected positive interest rate differential shock on portfolio flows dynamics Conclusion 114 Appendix A 7 115

6 Contents ix 8 Investment Flows and Exchange Rate Effects on the Trade Balance Introduction Further trend analysis Theoretical linkages VAR methodology Findings Does the evidence change when we add more shocks? Which components of the trade balance transmit the shocks? The historical and variance decompositions Conclusion 128 Appendix A8 129 Part IV Equity Markets Interdependence and Financial Stress 9 Interdependence in Emerging Economies: The Case of Equity Markets Introduction The multivariate VAR-EGARCH model The mean equation The variance equation Covariance relationship Summary of the relationships Data and descriptive statistics Results: conditional mean results Asymmetrie transmission based on the conditional variance How vulnerable is South Africa's economic growth to an unexpected positive stock price returns and volatility shocks? Are there any differential effects between stock returns and volatility on economic growth? To what extent do stock price dynamics differ from other shocks? Do stock price returns and volatility transmit portfolio outflow shocks into the economy? 144

7 x Contents 9.5 Which shock between stock price volatility and monetary policy tightening impacts economic growth the most? How would economic growth have evolved in the absence of stock returns and volatility? Conclusion 148 Appendix A Financial Stress, Volatility and Economic Activity in South Africa Introduction The construction of the financial stress index Data and the construction of the FSI for South Africa The FSI and its effects on economic activity The relationship between financial stress and economic activity Impulse response analysis The propagation role of the financial stress index Effects of financial stresses on monetary policy reaction function Conclusion 159 Appendix A Conclusion 161 Notes 167 References 171 Index 183