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Volatile Capital Flows and a Route to Financial Crisis in South Africa

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  • McKenzie, Rex
  • Pons-Vignon, Nicolas

Abstract

Abstract This is a review article; its purpose is to support a debate on the use of the best available economic theory and evidence in monetary policy in contemporary South Africa. In order to do so, I contrast South Africa's laissez-faire management of capital flows with the experience of other countries where the authorities have opted to use capital control techniques of one type or another. The empirical evidence is fairly substantial, capital control techniques can play a useful part in staving off fragility and financial crisis in the event of sharp surges in capital flows. The key idea is that capital control techniques would offer the authorities more freedom and flexibility in the management of capital flows and the pursuit of monetary policy. The article follows on from Mohammed (2010) who concludes that South African policy makers have not yet learned the relevant lessons stemming from their neoliberal embrace. This article takes up that theme and uses macroeconomic data to show that without capital controls South Africa courts a financial crisis that can be transmitted via any one of at least three channels.

Suggested Citation

  • McKenzie, Rex & Pons-Vignon, Nicolas, 2012. "Volatile Capital Flows and a Route to Financial Crisis in South Africa," MPRA Paper 40119, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:40119
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    File URL: https://mpra.ub.uni-muenchen.de/40119/1/MPRA_paper_40119.pdf
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    References listed on IDEAS

    as
    1. Robert Pollin & Gerald Epstein & James Heintz & LĂ©once Ndikumana, 2006. "An Employment-targeted Economic Programme for South Africa," Country Study 1, International Policy Centre for Inclusive Growth.
    2. Rex A. McKenzie, 2011. "Casino Capitalism with Derivatives: Fragility and Instability in Contemporary Finance," Review of Radical Political Economics, Union for Radical Political Economics, vol. 43(2), pages 198-215, June.
    3. Juan Antonio Montecino & Jose Antonio Cordero, 2010. "Capital Controls and Monetary Policy in Developing Countries," CEPR Reports and Issue Briefs 2010-10, Center for Economic and Policy Research (CEPR).
    4. Jeffrey Frankel, 2007. "On The Rand: Determinants Of The South African Exchange Rate," South African Journal of Economics, Economic Society of South Africa, vol. 75(3), pages 425-441, September.
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    Cited by:

    1. Karwowski, Ewa & Stockhammer, Engelbert, 2016. "Financialisation in Emerging Economies: A Systematic Overview and Comparison with Anglo-Saxon Economies," Economics Discussion Papers 2016-11, School of Economics, Kingston University London.
    2. Karwowski, Ewa, 2017. "Corporate financialisation in South Africa: From investment strike to housing bubble," Economics Discussion Papers 2017-7, School of Economics, Kingston University London.
    3. Emmanuel Owusu-Sekyere, 2016. "The impact of monetary policy on household consumption in South Africa. Evidence from Vector Autoregressive Techniques," Working Papers 598, Economic Research Southern Africa.

    More about this item

    Keywords

    monetary policy; capital flows; capital controls;

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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