Financial Stress Indicator Variables and Monetary Policy in South Africa
Abstract. This paper analyses the relationship between financial stress indicator variables and monetary policy in South Africa with emphasis on how robust these variables are related to the monetary policy interest rate. The financial stress indicator variables comprise a set of variables from the main segments of the South African financial market that include the bond and equity securities markets, the commodity market and the exchange rate market.The empirical results show that the set of financial stress indicator variables from the bond and equity securities markets as well as those from credit markets and property markets are robustly associated with the monetary policy interest rate, while the set of financial stress indicator variables from commodity markets and the exchange rate market are weakly associated with the monetary policy interest rate.
Keywords. Financial stressindicator variables, Monetary policy.
JEL. C32, C51, E52, E61, G01, G10.
Balakrishnan, R., Danninger, S., Elekdag, S., & Tytell, I. (2009). The Transmission of Financial Stress from Advanced to Emerging Economies. IMF Working Paper, 09/133.
Baxa, J., Horvath, R., & Vasicek, B. (2013). Time-varying monetary-policy rules and financial stress: Does financial instability matter for monetary policy?. Journal of Financial Stability, 9(1), 117-138. doi. 10.1016/j.jfs.2011.10.002
Bernanke, B., & Gertler, M. (1999). Monetary policy and asset price volatility. Federal Reserve Bank of Kansas City Economic Review, 1999(4), 17-51. doi. 10.3386/w7559
Bernanke, B., Gertler, M., & Gilchrist, S. (1999). The financial accelerator in a quantitative business cycle framework. in J. Taylor & M. Woodford (eds.). Handbook of Macroeconomics, 1, 1341-1393
Bernanke, B., & Gertler, M. (2001). Should central banks respond to movements in asset prices?. American Economic Review, 91(2), 253-257. doi. 10.1257/aer.91.2.253
Borio, C. (2011). Rediscovering the macroeconomic roots of financial stability policy: Journey, challenges, and a way forward. Annual Review of Financial Economics, 3(1), 87-117. doi. 10.1146/annurev-financial-102710-14481
Borio, C. (2012). The financial cycle and macroeconomics: What have we learnt?. Bank for International Settlements, Working Paper, No. 395.
Borio, C., & Lowe, P. (2004). Securing sustainable price stability: should credit come back from the wilderness?. Basel: Bank of International Settlements, Working Paper, No. 157.
Borio, C., & White, W. (2004). Whither monetary and financial stability? The implications of evolving policy regimes. Basel: Bank of International Settlements, Working Paper, No. 147.
Caprio, G. (2011). Macro-financial linkages research in IMF research. International Monetary Fund Working Paper, No./11/07.
Cardak, B.A., & Moosa, I.A. (2006). The determinants of foreign direct investment: An extreme bounds analysis. Journal of Multinational Financial Management, 16(2), 199-211. doi. 10.1016/j.mulfin.2005.07.002
Cardarelli, R., Elekdag, S., & Lall, S. (2011). Financial stress and economic contractions. Journal of Financial Stability, 7(2), 78-97. doi. 10.1016/j.jfs.2010.01.005
Cecchetti, S., Genberg, H., Lipsky, J., & Wadhwani, S. (2000). Asset prices and monetary policy. The Geneva Report on the World Economy: 2, Geneva: International Centre for Monetary and Banking Studies, May.
Cecchetti, S., Genberg, H., & Wadhwani, S. (2003). Asset prices in a flexible inflation targeting framework. in Hunter, W., Kaufman, G., & Pomerleano, M. (eds), Asset Price Bubbles: The Implications for Monetary, Regulatory, and International Policies, MIT press, 427-244.
Christiano, L., Ilutz, C., Mottoxand, R., & Rostagno, M. (2010). Monetary policy and stock market booms. Prepared for Macroeconomic Challenges: the Decade Ahead, A Symposium Sponsored by the Federal Reserve Bank of Kansas City Jackson Hole, Wyoming August 26-28.
Cevik, I., Dibooglu, S., & Kutan, A, (2013). Measuring financial stress in transition economies. Journal of Financial Stability, 9(4), 597-611. doi. 10.1016/j.jfs.2012.10.001
Curdia, V., & Woodford, M. (2010). Credit spreads and monetary policy. Journal of Money, Credit and Banking, 42(S1), 3-35. doi. 10.1111/j.1538-4616.2010.00328.x
Curdia, V., & Woodford, M. (2011). The central bank balance sheet as an instrument of monetary policy. Journal of Monetary Economics, 58(1), 54-79. doi. 10.1016/j.jmoneco.2010.09.011
Edwards, S., & Vegh, C.A. (1997). Banks and macroeconomics disturbances under predetermined exchange rates. NBER Working Paper, No. 5977. doi. 10.3386/w5977
Gali, J. (2013). Monetary policy and rational asset price bubbles. NBER Working Paper, No. 18806. doi. 10.3386/w18806
Gali, J., & Gambetti, L. (2013). The effects of monetary policy on stock market bubbles: Some evidence. Barcelona Graduate School of Economics Working Papers, No.724.
Gertler, M., & Karadi, P. (2011). A model of unconventional monetary policy. Journal of Monetary Economics, 58(1), 17-34. doi. 10.1016/j.jmoneco.2010.10.004
Gertler, M., & Kiyotaki, N. (2010). Financial intermediation and credit policy in business cycle analysis. in Friedman, B.M. & Woodford, M. (eds.), Handbook of Monetary Economics, 3, 601-650.
Hakkio, C., & Keeton, W. (2009). Financial stress: what is it, how can it be measured, and why does it matter?. Federal Reserve Bank of Kansas City Economic Review, 2009(2), 5-50.
Hlavac, M. (2014). Extreme Bounds: Extreme Bounds Analysis in R. R package, Vs. 0.1.2, The R Project for Statistical Computing, February.
Illing, M., & Liu, Y. (2006). Measuring financial stress in a developed country: An application to Canada. Journal of Financial Stability, 2(3), 243-265. doi. 10.1016/j.jfs.2006.06.002
Issing, O. (2011). Lessons for monetary policy: what should the consensus be?. Globalization and Monetary Policy Institute Working Paper, No. 81.
Kabundi, A., & Ngwenya, N. (2011). Assessing monetary policy In South Africa in a data‐rich environment. South African Journal of Economics, 79(1), 91-107. doi. 10.1111/j.1813-6982.2011.01265.x
Kasai, N., & Naraidoo, R. (2012). Financial assets, linear and nonlinear policy rules: An in-sample assessment of the reaction function of the South African Reserve Bank. Journal of Economic Studies, 39(2), 161-177. doi. 10.1108/01443581211222644
Kiyotaki, N., & Moore, J. (1997). Credit cycles. Journal of Political Economy, 105(2), 211-248. doi. 10.1086/262072
Kliesen, K., Owyang, M., & Vermann, K. (2012). Disentangling diverse measures: A survey of financial stress indexes. Federal Reserve Bank of St. Louis Review, 94(5), 369-398.
Leamer, E. (1985). Sensitivity analysis would help. American Economic Review. 57(3), 308-313.
Leamer, E., & Leonard, H. (1983). Reporting the fragility of regression estimates. Review of Economics and Statistics, 65(2), 306-317. doi. 10.2307/1924497
Levine, R., & Renelt, D. (1992). A sensitivity analysis of cross country growth regressions. American Economic Review, 82(4), 942-963.
Liu, G., & Seeiso, N. (2012). Business cycle and bank capital regulation: Basel II procyclicality. Economic Modelling, 29(3), 848-857. doi. 10.1016/j.econmod.2011.10.015
Lo Duca, M., & Peltonen, T. (2011). Macro-financial vulnerabilities and future financial stress - assessing systemic risks and predicting systemic events. European Central Bank Working Paper, No. 1311.
McFadden, D. (1974). Frontiers in econometrics. Chapter, Conditional Logit Analysis of Quantitative Choice Behaviour Academic Press, New York
Naraidoo, R., & Paya, I. (2012). Forecasting monetary policy rules in South Africa. International Journal of Forecasting, 28(2), 446-455. doi. 10.1016/j.ijforecast.2011.04.006
Naraidoo, R., & Raputsoane, L. (2010). Zone‐targeting monetary policy preferences and financial market conditions: A flexible non‐linear policy reaction function of the SARB monetary policy. South African Journal of Economics, 78(4), 400-417. doi. 10.1111/j.1813-6982.2010.01256.x
Reed, W. (2009). The determinants of US State economic growth: A less extreme bounds analysis. Economic Enquiry, 47(4), 685-700. doi. 10.1111/j.1465-7295.2008.00127.x
Roger, S., & Vlcek, J. (2012). Macrofinancial modelling at central banks: Recent developments and future directions. International Monetary Fund Working Paper, No. 12/21.
Sala-i-Martin, X. (1997). I just ran two million regressions. American Economic Review, 87(2), 178-183.
Sturm, J.E., & de Haan, J. (2005). Determinants of long term growth: New results applying robust estimation and extreme bounds analysis. Empirical Economics, 30(3), 597-617. doi. 10.1007/s00181-005-0252-x
Taylor, J. (2008). The financial crisis and the policy responses: An empirical analysis of what went wrong. NBER Working Paper, No. 14631. doi. 10.3386/w14631
Woodford, M. (2012). Inflation targeting and financial stability. NBER Working Paper, No. 17967. doi. 10.3386/w17967
White, H. (1980). A heteroskedasticity-consistent covariance matrix estimation and a direct test for heteroskedasticity. Econometrica, 48(4), 817-838. doi. 10.2307/1912934
- There are currently no refbacks.
Journal of Economics Bibliography - J. Econ. Bib. - JEB - www.kspjournals.org
Copyright © KSP Journals