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Has the South African Reserve Bank responded to equity returns since the sub-prime crisis? An asymmetric convergence appraoch

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  • Andrew Phiri

    (Department of Economics, Nelson Mandela University)

Abstract

The global financial crisis of 2008 sparked an ongoing debate concerning the interlink between monetary policy and equity returns. This study contributes to the debate by examining whether the South African Reserve Bank (SARB) repo rate responds asymmetrically to changes in the returns on four equity indices on the Johannesburg Stock Exchange (JSE). Our empirical model is the momentum threshold autoregressive (MTAR) model which is applied to monthly data corresponding to periods before the financial crisis (2002:01 - 2008:08) and periods after the crisis (2008:08 - 2016:12). There are three main findings which can be derived from our empirical analysis. Firstly, we significant negative relationship between equity prices to the repo rate before the crisis and this relationship turns insignificant in periods after the crisis. Secondly, we find that the Reserve Bank mainly monitored positive disturbances to equity indices before the crisis whereas after the crisis the Reserve Bank appears to be more responsive to negative equity deviations. Lastly, we find significant error correcting behaviour in periods before the crisis but not afterwards. Overall, our results indicate that the SARB appears to have been responsive to equity returns prior to the crisis but not for subsequent periods.

Suggested Citation

  • Andrew Phiri, 2017. "Has the South African Reserve Bank responded to equity returns since the sub-prime crisis? An asymmetric convergence appraoch," Working Papers 1709, Department of Economics, Nelson Mandela University, revised Aug 2017.
  • Handle: RePEc:mnd:wpaper:1709
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    Cited by:

    1. Sinazo Guduza & Andrew Phiri, 2017. "Efficient market hypothesis: Evidence from the JSE equity and bond markets," Working Papers 1718, Department of Economics, Nelson Mandela University, revised Dec 2017.
    2. Andrew Phiri, 2020. "Structural changes in exchange rate-stock returns dynamics in South Africa: examining the role of crisis and new trading platform," Economic Change and Restructuring, Springer, vol. 53(1), pages 171-193, February.

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    Keywords

    Repo rate; Stock market returns; Monetary Policy; South African Reserve Bank (SARB); Johannesburg Stock Exchange (JSE); Financial crisis; South Africa.;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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