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Spillovers of the Conventional and Unconventional Monetary Policy from the US to South Africa
Author(s) -
Kabundi Alain,
Loate Tumisang,
Viegi Nicola
Publication year - 2020
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/saje.12262
Subject(s) - monetary policy , economics , financial crisis , balance sheet , interest rate , inflation (cosmology) , credit channel , monetary economics , monetary hegemony , inflation targeting , macroeconomics , finance , physics , theoretical physics
This paper assesses the effect of US monetary policy on South Africa during the period 1990–2018. We separately analyse and compare the effect of conventional monetary policy, before the Global Financial Crisis, and unconventional monetary policy, after the US monetary policy reached the zero‐lower bound. Our impulse response function results indicate that monetary policy in South Africa responds mainly to local inflation, economic activity and financial conditions. While there is strong correlation between the global and South African financial cycle, the financial cycle is not transmitted to the real economy because of the sluggish response of industrial production and domestic credit, especially after the global financial crisis. We see this as an indication of the effects of structural issues to the real economy and constrained households’ balance sheet which has prevented the local economy to take advantage of low local interest rates and the global economic recovery after the crisis.