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Estimating and explaining changes in potential growth in South Africa

Author

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  • Johannes Kemp

    (Bureau for Economic Research, University of Stellenbosch)

  • Ben Smit

    (Bureau for Economic Research, University of Stellenbosch)

Abstract

Estimates of potential output growth in SA have declined from over 3% prior to the Global Financial Crisis (GFC) to just over 2% currently (Ehlers et al, 2013; Anvari et al, 2014; IMF, 2014; SARB MPC statement, March 2015; Kemp, 2015). A similar slowdown has been experienced in several other countries, including most members of the G20 (IMF, 2015). The purpose of this paper is to (i) estimate SA’s level of potential output growth both before and after the GFC using a multi-variate filter technique based on Blagrave et al (2015) and (ii) attempt to explain the apparent decline in the growth potential by investigating the underlying drivers of potential GDP growth using a Cobb-Douglas-type production function (similar to IMF, 2015). It is found that potential growth has declined to around 2.2% post-GFC. It is also determined that the biggest driver of the post-crisis decline in potential growth has been lower productivity growth.

Suggested Citation

  • Johannes Kemp & Ben Smit, 2015. "Estimating and explaining changes in potential growth in South Africa," Working Papers 14/2015, Stellenbosch University, Department of Economics.
    • Handle: RePEc:sza:wpaper:wpapers247
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    References listed on IDEAS

    as
    1. N Ehlers & L Mboji & M M Smal, 2013. "The pace of potential output growth in the South African economy," Working Papers 5600, South African Reserve Bank.
    2. Philippe Burger, 2014. "Inflation and Market Uncertainty in South Africa," South African Journal of Economics, Economic Society of South Africa, vol. 82(4), pages 583-602, December.
    3. Luis M. Cubeddu & Alexander Culiuc & Ghada Fayad & Yuan Gao & Kalpana Kochhar & Annette J Kyobe & Ceyda Oner & Roberto Perrelli & Sarah Sanya & Evridiki Tsounta & Zhongxia Zhang, 2014. "Emerging Markets in Transition; Growth Prospects and Challenges," IMF Staff Discussion Notes 14/6, International Monetary Fund.
    4. Patrick Blagrave & Mr. Roberto Garcia-Saltos & Mr. Douglas Laxton & Fan Zhang, 2015. "A Simple Multivariate Filter for Estimating Potential Output," IMF Working Papers 2015/079, International Monetary Fund.
    5. Johannes Hermanus Kemp, 2015. "Measuring Potential Output for the South African Economy: Embedding Information About the Financial Cycle," South African Journal of Economics, Economic Society of South Africa, vol. 83(4), pages 549-568, December.
    6. Morten O. Ravn & Harald Uhlig, 2002. "On adjusting the Hodrick-Prescott filter for the frequency of observations," The Review of Economics and Statistics, MIT Press, vol. 84(2), pages 371-375.
    7. International Monetary Fund, 2010. "Estimating Potential Output with a Multivariate Filter," IMF Working Papers 2010/285, International Monetary Fund.
    8. Mr. Luis M. Cubeddu & Mr. Alexander Culiuc & Ms. Ghada Fayad & Miss Yuan Gao & Ms. Kalpana Kochhar & Ms. Annette J Kyobe & Ceyda Oner & Mr. Roberto Perrelli & Sarah Sanya & Ms. Evridiki Tsounta & Mr. , 2014. "Emerging Markets in Transition: Growth Prospects and Challenges," IMF Staff Discussion Notes 2014/006, International Monetary Fund.
    9. Ali Alichi, 2015. "A New Methodology for Estimating the Output Gap in the United States," IMF Working Papers 2015/144, International Monetary Fund.
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    Citations

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    Cited by:

    1. Byron Botha & Franz Ruch & Rudi Steinbach, 2018. "Shortlived supply shocks to potential growth," Working Papers 8605, South African Reserve Bank.
    2. Cobus Vermeulen, 2023. "The inherent uncertainties in output gap estimation a South African perspective," Working Papers 11051, South African Reserve Bank.

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    More about this item

    Keywords

    Macroeconomic modelling; Potential output; Multivariate filter; Cobb-Douglas;
    All these keywords.

    JEL classification:

    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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