Mthuli Ncube & Eliphas Ndou 
Global Growth and Financial Spillovers and the South African Macro-economy 

To what extent is South Africa affected by G8 economies and BRIC growth shocks? This book identifies channels that amplify these shock effects, the relevance of third country transmission effects and the effects of the first and second rounds of US quantitative easing. The changing reactions of South African variables over time to financial shocks emanating from the US and selected countries in the Euro area, is presented. The book quantifies the effects of capital flow shocks, determines the counterfactuals of asset prices and economic growth variables, and compares the contribution of capital flows and domestic macro factors on asset prices. The effects of the exchange rate depreciation are contrasted to the decline in investment as key drivers of the trade balance. Stock market interdependence is determined amongst South African, Indian and Brazilian equities. The contributions of stock price returns and volatility on South African economic growth are contrasted. The authors construct a financial stress index for South Africa and determine how it amplifies shocks.

Daftar Isi

Contents

Introduction

1.1 Risk Aversion Strains, Asset Price And Spreads

1.2 Assessing Co-Movements In Asset Prices

1.3 G7 Growth Versus South African Economic Growth

1.4 Correlation Between South African Trade Variables And G7 Economic Growth

1.5 South Africa’s Export Shares Versus Global Economic Growth

PART I: GROWTH SPILL-OVER EFFECTS

2. G8 Economic Growth Spill-Over Into South Africa25

2.1 Introduction

2.2 Recent Growth Spill-Overs Evidence

2.2.1 Regional Sources Of Growth Spill-Overs Evidence

2.2.2 Evidence Of Various Channels Of Transmission

2.3 Brief Discussions Of Various Economic Linkages

2.3.1 Trade Patterns

2.3.2 Foreign Inward And Outward Direct Investment

2.3.3 Real Effective Exchange Rate Movements: Implications For Competitiveness

2.4 Methodology

2.4.1 Poirsson And Weber (2011) Growth Spill-Over Framework

2.5 Data

2.6 Empirical Analysis

2.6.1 How Does South African Economic Growth Respond To G8 Growth Shocks?

2.6.2 How Did South African Growth Evolve Pre, During And Post The 2008/09 Crisis?

2.6.3 The Role Of Different Transmission Channels

2.6.4 Third Country Growth Transmission

2.7 Conclusion

Appendix 2A

Ordering Sequence

Various Counterfactual Graphs

PART III: GROWTH SPILL-OVERS FROM BRIC

3.1 Introduction

3.2 Dissecting The Role Of China On South African Trade Dynamics

3.2.1 South African Exports To China

3.2.2 South African Imports From China

3.3 Methodology

3.3.1 Poirsson And Weber (2011) Growth Spill-Over Methodology

3.4 Data

3.5 Empirical Results

3.5.1 How Did Bric Contribute To South African Growth During The 2008/09 Crisis And Beyond?

3.5.2 The Role Of Different Transmission Channels

3.5.2.1 Counterfactual Analysis Of Various Channels And Third Country Effects

3.6 Conclusion

Appendix 3A

Ordering Sequence

PART IV: SPILL-OVERSOF FOREIGN FINANCIAL SHOCKS

4. Spill-Overs Of Us Financial Shocks On The South African Economy

4.1 Introduction

4.2 Other Trade And Investment Dynamics

4.3 Recent Studies

4.4 Var Methodology

4.5 Data

4.6 Results

4.6.1 Review Of The Portfolio Balance Model And The Discussion Of The Results

4.6.2 Does The Sample Size Alter The Responses?

4.6.3 Comparison Of The Responses Of Real Interest Rates, Bond Yields And The Exchange Rate Over Various Periods

4.7 Conclusion

Appendix 4A

5. Spill-Overs From The Euro Area Bond Yields On The South African Macro-Economy

5.1 Introduction

5.2 Dissecting The South Africa-Euro Area Trade Linkages

5.2.1 Changes In Export Shares

5.3 Brief Review Of The Portfolio Balance Model Of Exchange Rate Determination

5.4 Var Methodology

5.5 Data

5.6 Results

5.6.1 The Responses To Unexpected Positive Euro Area Bond Yield Shock

5.6.2 The Responses To Unexpected Rise In Selected Effects Of Selected Euro Area Countries

5.6.3 Robustness Analysis Using The Extended Sample Data

5.6.4 Counterfactual Analysis Using The Extended Sample Data

5.7 Conclusion

Capital Flow Effects And The Trade Balance 

6. Capital Inflows And Asset Price Movements In South Africa

6.1 Introduction

6.2 Stylised Relationships During The Inflation Targeting Framework

6.3 Recent Studies

6.4 Var Methodology

6.5 Data

6.5.1 What Are The Initial Responses Of The Variables On Impact?

6.6 Results

6.6.1 Did Capital Inflows Impact Imports And Exports: Implication For Economic Growth 120

6.6.2 What Are The Implications For Financial Stability?

6.6.2.1 The Effects Of Capital Inflows On Financial Vulnerability Indicators

6.6.2.2. How Big Is The Role Played By Capital Inflows Shocks On The Evolution Credit Growth?

6.6.2.3 Residential Property Tobin’s Q And Capital Inflows Effects

6.7 Conclusion

Appendix 6a

7. Portfolio Inflow And Outflow Effects On The Economy

7.1 Introduction

7.2 Stylised Facts Of Portfolio Flow Effects

7.2.1 Do Net Portfolio Flows Increase Asset Price Returns?

7.2.2 How Does The Net Portfolio And Capital Inflows Impact Exchange Rate?

7.2.3 Trends In Portfolio Flow Dynamics And Selected Variables

7.2.3.1 Portfolio Flow Dynamics And Real Effective Exchange Rate Changes

7.2.3.2 Portfolio Flow Dynamics And Stock Prices Inflation

7.2.3.3 Portfolio Flow Dynamics And House Price Inflation

7.2.3.4 What Is The Relationship Between Portfolio Flow Dynamics And Economic Growth?

7.3 Var Methodology

7.4 Data

7.5 Results

7.5.1 What Are The Effects Of Positive Inflation Shock On Various Inflows And Outflows?

7.5.2 What Are The Effects Of A Contractionary Monetary Policy Shock On Capital Inflows And Outflows?

7.5.3 What Are The Effects Of Portfolio Outflows And Other Forms Of Outflow Shocks?

7.5.4 What Are The Effects Of Positive Portfolio Inflows And Other Forms Of Capital Inflows Shocks?

7.6 Examining The Role Of Portfolio Flows On Dynamics Of Macroeconomic Variables Using Counterfactual Analysis

7.6.1 Contributions Of Portfolio Flows Versus Domestic Factors Contributions On Asset Prices

7.6.2 Portfolio Flows Versus Asset Price And Domestic Factors: Counterfactual Economic Growth Analysis

7.7. Unexpected Positive Interest Rate Differential Shock On Portfolio Flows Dynamics

7.8 Conclusion

Appendix 7a 

8. Investment Slowdown And The Exchange Rate Effects On The Trade Balance 152

8.1 Introduction

8.2 Theoretical Linkages

8.3 Trends In Selected Financial And Macroeconomic Variables

8.4 Var Methodology

8.5 Data

8.6 Results

8.6.1 Does The Evidence Change When We Add More Shocks?

8.6.2 Which Components Of The Trade Balance Transmit The Shocks?

8.7 Historical And Variance Decompositions

8.9 Conclusion

PART IV: EQUITY MARKETS INTERDEPENDENCE AND FINANCIAL STRESS

9. Equity Markets Interdependence In Emerging Market Economies

9.1 Introduction

9.2 The Multivariate Var-Egarch Model

9.2.1 Mean Equation

9.2.2 Variance Equation

9.2.3 Covariance Relationship

9.2.4 Summary Of The Relationships

9.3 Data And Descriptive Statistics

9.4 Main Empirical Findings

9.4.1 Conditional Mean Results

9.4.2 Is There Evidence Of Asymmetric Transmission Based On Conditional Variance?

9.5 How Vulnerable Is The South African Economic Growth To Unexpected Stock Price Returns And Volatility Shocks?

9.5.1 Are There Any Differential Effects Between Stock Returns And Volatility On Economic Growth?

9.5.2 To What Extent Do Stock Price Dynamics That Drive Fluctuations In Economic Growth Differ From Other Shocks?

9.5.3 Do Stock Price Returns And Volatility Transmit Portfolio Outflow Shocks Into The Economy?

9.5.4 Which Shock Between Stock Price Volatility And Monetary Policy Tightening Impacts Economic Growth The Most?

9.5.5 How Would Economic Growth Have Evolved In The Absence Of Stock Price Returns And Volatility?

9.6 Conclusion

10. Financial Stress, Volatility And Economic Activity In South Africa

10.1 Introduction

10.2 The Relationship Between Financial Stress And Macroeconomic Effects

10.3 Recent Studies

10.4 Methodology

10.5 Data And The Financial Stress Index For South African Economy

10.6 Discussion Of The Financial Stress Index Effects On Economic Activity

10.6.1 The Relationship Between Financial Stress And Economic Activity

10.6.1.1 Granger Causality Results

10.6.1.2 Impulse Response Analysis

10.6.2 The Propagation Role Of The Financial Stress Index

10.6.2.1 Does Financial Stress Index Propagates The Effects Of Inflation On Economic Activity?

10.6.2.2 Does The Fsi Propagate The Response Of Interest Rates On Inflation Rate?

10.7 The Effects Of Financial Stresses On The Policy Reaction Function

10.8 Conclusion

11. Conclusion

Tentang Penulis

Eliphas Ndou holds a Doctorate Degree in Economics from the University of the Witwatersrand and lecture at this university international finance and currently lectures. Currently works at South African Reserve Bank as an economist.

Nombulelo Gumata holds a Masters Degree in Economics from the University of Johannesburg. She is an economist at the Reserve Bank of South Africa. She also lectures and tutors on part time basis at the Centre for Education in Economics and Finance Africa (CEEF.Africa). CEEF.Africa supports students who study with the University of London for degrees and diplomas in Economics and Finance. Students register with the University of London’s distance learning programme and receive local comprehensive lecturing and tutoring and CEEF Africa.
 
Mthuli Ncube is Senior Research Fellow at University of Oxford, Blavatnik School of Government, UK. Between 2010 and 2014, he was Chief Economist and Vice President at the African Development Bank. He has also been Dean and Professor at Wits Business School, and Dean of Faculty of Commerce, Law and Management, at the University of the Witwatersrand (Wits). He was a Lecturer in Finance at the London School of Economics, UK. He has published widely in the area of finance and economics. He also has extensive experience as an investment banker and regulator. He is Chairman of the African Economic Research Consortium. He holds a Ph D in Economics (Mathematical Finance) from University of Cambridge, UK.