3. Electronic Theses and Dissertations (ETDs) - All submissions
Permanent URI for this communityhttps://wiredspace.wits.ac.za/handle/10539/45
Browse
8 results
Search Results
Item Monetary policy and stock market liquidity: empirical evidence from the Johannesburg Stock Exchange (JSE)(2018) Nyika, Patrick. H.e recent financial crisis has given liquidity an important role in the financial market functioning. Especially in small size equity markets like the African, lack of liquidity has been reported as major issue. In order to source the causes of the lack of liquidity, this study investigated the relationship between monetary policy and stock market liquidity in South Africa using fixed and random effect estimations for stock specific effect and VAR impulse response function for portfolio analysis. We first estimate a Taylor rule for South Africa, which we augment with a financial indicator adapted from the literature and use the difference between actual and fitted values to measure monetary stance. The literature on the monetary policy rules in South Africa revealed M3 as the instrument used by the SARB before the period of inflation targeting that started in February 2000. We then used the monetary stance computed from the Taylor rule and the growth rate of M3 as measures of monetary policy. The panel regression analysis, with monetary policy measured by the growth rate of money supply, is only significant in the case of illiquidity models while monetary policy shows no effect on liquidity models in that case. In the case of monetary policy as measured by Taylor rule, the turnover model revealed a negative relationship, but weakly significant. Further, a positive and significant effect at 5% and 10% was revealed for Amihud’s illiquidity measure and Roll’s price impact measure. The impulse response analysis shows different results as compared to the stock specific analysis. The study found that monetary policy, as measured by money supply, has a positive effect on the liquidity variables which are turnover and trading volume; and also found that the monetary policy, as measured by the Taylor monetary stance, has a positive effect on illiquidity variables.Item Inflation, growth and monetory policy in South Africa: application of non-linear models(2018) Tshuma, Mthokozisi MncedisiThis thesis intends to shed new light on the conduct of South Africa’s central bank behavior. The thesis analyses the monetary policy conduct and the use of non-linear rules in South Africa. Furthermore, it scrutinizes the applicability of non-linear rules in characterizing the monetary policy behaviour in South Africa. Over and above the introductory chapter, the thesis comprises five main independent chapters, namely: chapters 2, 3, 4, 5, and 6. Chapter 7 cover conclusions. Chapter 21 determines the applicability of a nonlinear Taylor rule in characterizing the monetary policy behavior of the South African Reserve Bank (SARB), using a logistic smooth transition regression approach. The evidence suggests the nonlinear Taylor rule is the most appropriate model to describe the monetary policy conduct of the South African Reserve Bank. In Chapter 3, nonlinear models are used to analyse the nonlinear relationship among monetary policy, economic activity and financial instability, which is an extension of the previous chapter (Chapter 2). Two models (threshold regression and smooth transition) were used to analyse the role of financial condition in the interest setting by monetary authorities. The findings indicate that there is an inflation threshold level of 6.2 percent above, which the central bank adjusts its interest rate to maintain price stability. The results provide enough evidence that the monetary policy followed by the South Africa Reserve Bank (SARB) can be described by a nonlinear Taylor rule. The thesis extends the analysis to determine the differential effects of inflation on GDP growth based on the estimated inflation. The purpose is to show that inflation is detrimental to economic growth at elevated levels. As a consequence, chapter 4 identifies the threshold effect of inflation on economic growth in South Africa. The estimated threshold model reveals that in South Africa, there is a non-linear relationship between inflation and economic growth. This implies that above the threshold level, inflation has a negative statistically significant effect on economic growth. These results may help policymakers in maintaining low inflation, which is below the threshold level to mitigate its negative effect on economic growth. Chapter 5 examines the effect of inflation variation on financial depth-growth relationship using a smooth transition regression model. The findings show that financial development and economic growth are non-linearly related with an increase in inflation beyond the threshold (at 4.3 percent) negatively impacting on economic growth. Therefore, financial development has a positive impact on economic growth when inflation is below the threshold of 4.3 percent, though above the threshold there is a negative relationship between financial development and economic growth. Chapter 6 examines the exchange rate pass through effect to headline CPI inflation, producer price inflation and import price inflation in South Africa. The analysis of exchange pass through effect is relevant in the context of South Africa as decisions of monetary policy makers take into account changes in domestic prices emanating from exchange rate adjustments. For the purposes of analysis, this chapter estimates a Threshold Vector Autoregression (TVAR) to capture switches between the low and high inflation regimes implied by the theoretical literature with inflation rate as a transition variable. Using nonlinear impulse response functions, this chapter evaluate the dynamics implied by the threshold model. Findings reveal that prices (headline CPI inflation, producer price inflation and import price inflation) react strongly to a positive one unit exchange rate shock both below and above the threshold level of the inflation rate.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.Item Effects of macroeconomic news on the South African financial markets: a domestic and foreign perspective(2017) Kotane, MauwaneThere is plenty of research examining the relationship between surprise macroeconomic data and financial returns, however, in a South African context, such research is scarce. This paper adds to the event study body of knowledge by studying the effects of South African macroeconomic announcements on South African financial returns and juxtaposing that with the relationship of surprise macroeconomic announcements released in the United States with the same local financial instrument returns. In this study, the review period is 10 years starting the beginning of 2006 and ending at the end of 2015. Two strands of economic news are studied, monetary news and real activity news against an equity futures index as a proxy for the South African Stock market; the R186 government bond as a proxy for the South African bond market and the spot US dollar to South African rand exchange rate. The monetary announcements studied are the interest rate adjustments of the South African and United States Central Banks and the consumer price index. The real activity data studied are the unemployment rate; the retail sales and the gross domestic product releases. Many of the findings in this paper were in line with much of the literature where evidence shows that monetary policy has a significant effect on fixed income and forex rates. Stocks were also to be shown to be sensitive to both types of data. The regression specification used in this study shows that local equities are more sensitive to both types of news, although mainly to South African news. Only monetary surprises are shown to be sensitive to the bond market and surprises from both countries. Evidence is that the rand is only sensitive to the interest rate announcements released in the United States.Item Inflation dynamics in South Africa(2016) Leshoro, Temitope LydiaThe design and implementation of the monetary policy in South Africa has been based on the idea of a trade-off between inflation and output growth. However, there is no consensus among empirical investigations on the existence of Phillips curve in the present times. While the South African Reserve Bank (SARB) has instrument independence, it does not have goal independence, which implies that there is coordination between the monetary policy and other macroeconomic policies. Thus, if the SARB objectives are in line with the other policy objectives, there should be a relationship between monetary variables and real variables. This therefore shows that in the long-run, monetary policy cannot single-handedly bring about both sustained economic growth and employment creation (SARB, 2014). Thus this study explored inflation dynamics in South Africa by using the Hybrid new Keynesian Phillips curve (HNKPC) and the augmented Gordon’s models. The study firstly estimated the Hybrid new Keynesian Phillips curve model with a view to determine whether Phillips curve exists and ascertain whether the backward-looking or forward-looking components drive inflation dynamics in South Africa using OLS and GMM estimation techniques. The results show that the Phillips curve does not exist in South Africa using various measures of demand-side variable. These findings are robust across estimation methodologies as well as different measurements of inflation expectations and data frequency. While the findings indicated that economic agents in South Africa are both rational and adaptive in predicting inflation, the results clearly showed the dominance of forward looking component over the backward looking element in driving inflation. Secondly, given the focus of the South African monetary authority in maintaining stable inflation rates and the fact that monetary policy need to go hand-in-hand with other policies in order to ensure stable inflation and economic growth (Gruen, Pagan and Thompson, 1999), this study considered the expanded Gordon’s model with a particular focus on how fiscal policy determines the inflation process in South Africa. The purpose of the Gordon’s chapter is to verify the existence or non-existence of Phillips curve in an expanded model, within the context of an augmented “triangle” model while including the monetarist and fiscal side variables, thereby checking whether the PC relationship of recent studies is robust to model specification. Thus, the augmented Gordon’s model was estimated using a holistic approach of including the fiscalist, monetarist and the structuralist schools of thought, using the Vector autoregressive (VAR), vector error correction model (VECM) and innovation accounting techniques. The results confirm the non-existence of PC whereby output growth maintained a negative relationship with inflation rate, signifying no trade-off despite the expanded specification, while the results from output-gap model are inconclusive. Further results showed that the demand-side, fiscal factors and some of the structural variables contribute more to the inflation dynamics in South Africa. Thus the changes in inflation rate are as a result of changes in output growth, government deficit, electricity price and exchange rate. The results confirmed that the Fiscal Theory of the Price Level (FTPL) applies to the South African economy, whereby not only monetary policies should be considered in controlling inflation, but also fiscal policies. On the other hand, the importance of the determinants of inflation rate is not sufficient in observing the inflation dynamics in South Africa; therefore, this study concluded by investigating the level at which inflation becomes detrimental to output growth. In the context of the low levels of economic growth and high levels of unemployment in South Africa, the study analysed the output growth implications of the inflation targeting monetary policy of the South African Reserve Bank that targets an inflation band between three and six percent. Using the Threshold Autoregressive (TAR) and the Sample Splitting Threshold Regression (SSTR) techniques, this study investigated the nonlinear inflation-growth nexus in South Africa with the purpose of identifying the inflation rate band that optimize output growth. The results showed that South Africa is able to accommodate a higher level of inflation beyond the current inflation target band by increasing the band to between seven and nine percent in order to enhance output growth. Our findings support the argument of studies that indicate that moderately higher inflation rate will not be harmful to the economy.Item Empirical analysis of the dynamics of the South African rand (Post-1994)(2016) May, CyrilThe objective of this thesis is to investigate the recent historical dynamics of the four major nominal bilateral spot foreign exchange rates and the fifteen currency-basket nominal effective exchange rate of the South African rand (hereafter referred to as the rand). The thesis has been organised as three separate studies that add to the advancement of the knowledge of the characteristics and behaviour (causal effects) of the rand. The common thread that holds the individual chapters together is the study of the dynamics of the rand. In particular, the study establishes whether the apparent nonstationarity of the exchange rate is a product of unit root test misspecification (a failure to account for structural change), considers the connexions between the timing of the identified structural shifts and important economic and noneconomic events, and analyses rand volatility and the temporal effect of monetary policy surprises on both the spot foreign exchange market returns and volatility of the rand. In order to do this, low- and high-frequency data are employed. With regard to exchange rate modelling, the theoretical economic-exchange rate frameworks are approached both from the traditional macro-based view of exchange rate determination and a micro-based perspective. The various methodologies applied here tackle different aspects of the exchange rate dynamics. To preview the results, we find that adjusting for structural shifts in the unit root tests does not render any of the exchange rates stationary. However, the results show a remarkable fall in the estimates of volatility persistence when structural breaks are integrated into the autoregressive conditional heteroskedasticity (ARCH) framework. The empirical results also shed light on the impact of modelling exchange rates as long memory processes, the extent of asymmetric responses to ‘good news’ and ‘bad news’, the consistencies and contrasts in the five exchange rate series’ volatility dynamics, and the timing and likely triggers of volatility regime switching. Additionally, there are convincing links between the timing of structural changes and important economic (and noneconomic) events, and commonality in the structural breaks detected in the levels and volatility of the rand. We also find statistically and economically significant high-frequency exchange rate returns and volatility responses to domestic interest rate surprises. Furthermore, the rapid response of the rand to monetary policy surprises suggests a relatively high degree of market efficiency (from a mechanical perspective) in processing this information. Keywords: Exchange rate, expectations, long memory, monetary policy surprises, repo rate, structural breaks, volatility; unit root. JEL Code: C22, E52, E58, F31, F41, G14 and G15