3. Electronic Theses and Dissertations (ETDs) - All submissions
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Item Monetary policy, asset prices and consumption : evidence from South Africa using the (FAVAR) approach(2018) Chimombe, Trevor TinotendaThis study is an addition to the useful application of the FAVAR method in estimating the effects of monetary policy shocks on the economy. It also fills a gap to the literature on the wealth channel effect of monetary policy through shocks on stock prices. We recognize further that very little work has been done in analyzing this wealth channel on African countries and therefore aim to provide explanations using the South African economy. We find results consistent with economic theory and literature using a few macroeconomic data variables on the South African economy. Firstly, consumption is a slow-moving variable and it takes at least one quarter before households completely adjust their consumption habits in response to the interest rate shock. We also find that interest rate changes vary the opportunity cost of holding money causing households to shift their money balances in response to the policy shock. This means consumption and short-term monetary policy shocks have a negative correlation. We also find asset markets to be weak form efficient, that is, stock prices react efficiently to policy announcements but with a lag. The speed of adjustment is delayed. This explains the results obtained which show a smooth concave response which means asset prices react positively to interest rate shocks in the short run, and negatively in the long-run.Item The impact of unconventional monetary policy announcements on emerging market asset prices(2018) Ngumbwe, MwambaAdvanced central banks have increased their balance sheets after the financial crisis which has raised concerns amongst market participants. However, there is no empirical evidence to provide guidance to on the optimal point of asset purchases. This paper examines spillover effects of unconventional monetary policy announcements from four advanced central banks on emerging market asset prices for the period 2009 to 2016. Vast amount of literature so far has focused on the spillover effects on advanced economies and mainly concentrates on announcements from the Federal Reserve. The research estimates the two day change on 15 emerging market economies’ asset prices. The results show that emerging market currencies exhibit higher returns against the Japanese Yen during the two day window period of the announcement being made. Bonds were more reactive to unconventional monetary policy than equities on days that announcements were made. Expectations of market participants were considered which showed that announcements made by the Bank of Japan (BOJ) were more anticipated by market participants which is an indication of how effective implementation of forward guidance has been over the years. The words and phrases used in making unconventional monetary policy announcements have had a significant effect on asset prices after the financial crisis.