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ADJUSTING SOUTH AFRICA'S FISCAL BALANCE FOR TERMS‐OF‐TRADE EFFECTS
Author(s) -
Swanepoel Jan A.
Publication year - 2007
Publication title -
south african journal of economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.502
H-Index - 31
eISSN - 1813-6982
pISSN - 0038-2280
DOI - 10.1111/j.1813-6982.2007.00142.x
Subject(s) - economics , balance of trade , commodity , balance (ability) , terms of trade , yield (engineering) , output gap , component (thermodynamics) , macroeconomics , government (linguistics) , monetary economics , international economics , finance , monetary policy , linguistics , physical medicine and rehabilitation , medicine , philosophy , materials science , physics , metallurgy , thermodynamics
Standard output gap‐based calculations and interpretations of the cyclical component of the fiscal balance may convey a misleading picture in countries such as South Africa which experience substantial movements in their terms of trade. This paper therefore adjusts South Africa's general government primary balance for terms‐of‐trade effects by means of an alternative calculation of the transitory component based on a measure of the real income gap rather than the real output gap. The results indicate that measures of the cyclical component of the budget balance based on real income and real output gaps generally yield broadly similar results over history, but during exceptional periods of rapid changes in commodity prices, the measures can be very different.