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Macroeconomic Fluctuations and Stabilization Policy Implications for Lesotho

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  • Powell L Mohapi
  • Matamatama C Mohapi

Abstract

This paper computes the facts on macroeconomic variables and investigates the implications of those facts for stabilization policy interventions for Lesotho. The Hodrick-Prescott (HP) filter is used to separate the trend and cyclical components of Lesotho macroeconomic variables, grouped into expenditure components—monetary variables, external variables and labor market variables. Cyclical components of each variable are used to compute moments such as standard deviation, first order auto-correlation coefficient and the cross-correlations of each cyclical series with the output cycle, upto four leads and four lags. An analysis of these facts and their implications for stabilization policy interventions is confined to high association cycles only, that is, the variables whose cycles are strongly correlated with the output cycle. Causality between each of these high association cycles and output reveal unidirectional causality from investment, exchange rate and employment to output, while, for the rest, no causality exists. Stabilization policy implications include stimulating investment, efforts towards employment generation and hedging against unfavorable exchange rate fluctuations.

Suggested Citation

  • Powell L Mohapi & Matamatama C Mohapi, 2008. "Macroeconomic Fluctuations and Stabilization Policy Implications for Lesotho," The IUP Journal of Monetary Economics, IUP Publications, vol. 0(3), pages 71-83, August.
    • Handle: RePEc:icf:icfjmo:v:06:y:2008:i:3:p:71-83
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