Monetary and fiscal policy effects in South African economy
African Journal of Economic and Management Studies
ISSN: 2040-0705
Article publication date: 4 May 2020
Issue publication date: 20 October 2020
Abstract
Purpose
The main purpose of this study is to see the macroeconomic effects of monetary and fiscal policy shocks in South Africa.
Design/methodology/approach
The joint effects of monetary and fiscal policy are analyzed by applying short-run contemporaneous restrictions for the identification of shocks in an SVAR in order to derive impulse response functions. Hence, a general AB model of (Amisano and Giannini, 1997) identification scheme, which is not recursive, is employed in this study.
Findings
The author shows that monetary tightening leads to a fall in real economic activity and depreciates the exchange rate. And in regard to the fiscal policy, the author calculates an initial government spending multiplier of 0.20, which later peaks at 0.40. The tax multiplier is almost 0 on impact and statistically insignificant. However, the author finds evidence supporting the existence of accommodative stance between monetary policy and fiscal policy, which is important for economic and political decision-making.
Originality/value
Empirical studies that deal with the joint effects of monetary and fiscal policy for South Africa through the SVAR framework are quite limited. This paper, therefore, contributes to the empirical literature on the effects of monetary and fiscal policy in a small open economy like South Africa.
Keywords
Citation
Nuru, N.Y. (2020), "Monetary and fiscal policy effects in South African economy", African Journal of Economic and Management Studies, Vol. 11 No. 4, pp. 625-638. https://doi.org/10.1108/AJEMS-08-2019-0308
Publisher
:Emerald Publishing Limited
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