IDEAS home Printed from https://ideas.repec.org/p/rbz/wpaper/8605.html

Shortlived supply shocks to potential growth

Author

Listed:
  • Byron Botha
  • Franz Ruch
  • Rudi Steinbach

Abstract

Potential growth, or the non-inflationary rate of growth in output, is generally viewed as a slow-moving and smooth process. This implies that all the sudden changes in real gross domestic product (GDP), regardless of origin, are reflected in the output gap. There are, however, short-lived supply shocks. Recent examples include the platinum-sector strike of 2014 and the drought of 2015/16 that are more accurately identified as temporary shifts in potential growth. We update the South African Reserve Bank's current, finance-neutral, estimates of potential growth to account for these short-lived supply shocks. We compare the supply shocks, that should shift potential growth rather than the output gap generated from the model, to a structural vector autoregression (SVAR) model. The resulting output gap more accurately reflects a measure of demand pressures in the economy at any given point in time. The output gap is not as wide as previously estimated after 2015.

Suggested Citation

  • Byron Botha & Franz Ruch & Rudi Steinbach, 2018. "Shortlived supply shocks to potential growth," Working Papers 8605, South African Reserve Bank.
    • Handle: RePEc:rbz:wpaper:8605
    as

    Download full text from publisher

    File URL: https://www.resbank.co.za/content/dam/sarb/publications/working-papers/2018/8605/WP1802a.pdf
    File Function: Revision
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Ben Smit & Le Roux Burrows, 2002. "Estimating potential output and output gaps for the South African economy," Working Papers 05/2002, Stellenbosch University, Department of Economics.
    2. 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.
    3. 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.
    4. Ali Alichi & Olivier Bizimana & Mr. Douglas Laxton & Kadir Tanyeri & Hou Wang & Jiaxiong Yao & Fan Zhang, 2017. "Multivariate Filter Estimation of Potential Output for the United States," IMF Working Papers 2017/106, International Monetary Fund.
    5. Blanchard, Olivier Jean & Quah, Danny, 1989. "The Dynamic Effects of Aggregate Demand and Supply Disturbances," American Economic Review, American Economic Association, vol. 79(4), pages 655-673, September.
    6. Peter K. Clark, 1987. "The Cyclical Component of U. S. Economic Activity," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 102(4), pages 797-814.
    7. Shaun de Jager, 2012. "Modelling South Africas equilibrium real effective exchange rate A VECM approach," Working Papers 5020, South African Reserve Bank.
    8. Mr. Vivek Arora & Mr. Ashok Bhundia, 2003. "Potential Output and total Factor Productivity Growth in Post-Apartheid South Africa," IMF Working Papers 2003/178, International Monetary Fund.
    9. Byron Botha & Shaun de Jager & Franz Ruch & Rudi Steinbach, 2017. "The Quarterly Projection Model of the SARB," Working Papers 8000, South African Reserve Bank.
    10. repec:imf:imfdps:2011/005 is not listed on IDEAS
    11. J. Kemp & B. Smit, 2016. "Estimating and Explaining Changes in Potential Growth in South Africa," Studies in Economics and Econometrics, Taylor & Francis Journals, vol. 40(3), pages 21-38, December.
    12. Johannes W. Fedderke & Daniel K. Mengisteab, 2017. "Estimating South Africa's Output Gap and Potential Growth Rate," South African Journal of Economics, Economic Society of South Africa, vol. 85(2), pages 161-177, June.
    13. 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.
    14. International Monetary Fund, 2014. "South Africa: Selected Issues," IMF Staff Country Reports 2014/339, International Monetary Fund.
    15. Ali Alichi, 2015. "A New Methodology for Estimating the Output Gap in the United States," IMF Working Papers 2015/144, International Monetary Fund.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. World Bank, 2020. "China Economic Update, July 2020," World Bank Publications - Reports 34264, The World Bank Group.
    2. Eric Schaling & Kgotso Morema, 2022. "Optimalinterestrategapsforflexibleinflationtargeting," Working Papers 11037, South African Reserve Bank.
    3. Cobus Vermeulen, 2023. "The inherent uncertainties in output gap estimation a South African perspective," Working Papers 11051, South African Reserve Bank.
    4. Byron Botha & Eric Schaling, 2020. "Commodity Prices and Policy Stabilisation in South Africa," Working Papers 10225, South African Reserve Bank.
    5. Christopher Loewald & David Faulkner & Konstantin Makrelov, 2020. "Time consistency and economic growth a case study of south african macroeconomic policy," Working Papers 10421, South African Reserve Bank.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Cobus Vermeulen, 2023. "The inherent uncertainties in output gap estimation a South African perspective," Working Papers 11051, South African Reserve Bank.
    2. Byron Botha & Eric Schaling, 2020. "Commodity Prices and Policy Stabilisation in South Africa," Working Papers 10225, South African Reserve Bank.
    3. Johannes W. Fedderke, 2022. "Identifying steady‐state growth and inflation in the South African economy, 1960–2020," South African Journal of Economics, Economic Society of South Africa, vol. 90(3), pages 279-300, September.
    4. J. Kemp & B. Smit, 2016. "Estimating and Explaining Changes in Potential Growth in South Africa," Studies in Economics and Econometrics, Taylor & Francis Journals, vol. 40(3), pages 21-38, December.
    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. Mr. Niels-Jakob H Hansen & Mr. Joannes Mongardini & Fan Zhang, 2019. "Labor Market Slack and the Output Gap: The Case of Korea," IMF Working Papers 2019/167, International Monetary Fund.
    7. Johannes W. Fedderke & Daniel K. Mengisteab, 2017. "Estimating South Africa's Output Gap and Potential Growth Rate," South African Journal of Economics, Economic Society of South Africa, vol. 85(2), pages 161-177, June.
    8. Ali Alichi & Rania A. Al-Mashat & Hayk Avetisyan & Mr. Jaromir Benes & Olivier Bizimana & Aram Butavyan & Mr. Robert Ford & Narek Ghazaryan & Vahagn Grigoryan & Mane Harutyunyan & Anahit Hovhannisyan , 2018. "Estimates of Potential Output and the Neutral Rate for the U.S. Economy," IMF Working Papers 2018/152, International Monetary Fund.
    9. Joseph Atta-Mensah & Sawuya Nakijoba, 2019. "Estimating the Potential Output and Output Gap of Ghana," Applied Economics and Finance, Redfame publishing, vol. 6(3), pages 58-70, May.
    10. Stan du Plessis & Ben Smit & Federico Sturzenegger, 2007. "Identifying aggregate supply and demand shocks in South Africa," Working Papers 11/2007, Stellenbosch University, Department of Economics.
    11. Mohamed A. M. Sallam & Mohamed R. Neffati, 2019. "Estimation and Analysis of the Output Gap for the Saudi Economy; Econometric Study (1970-2016)," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 9(2), pages 267-284, February.
    12. Mitsuru Katagiri, 2018. "Equilibrium Yield Curve, the Phillips Curve, and Monetary Policy," IMF Working Papers 2018/242, International Monetary Fund.
    13. Fedderke, Johannes W., 2018. "Exploring unbalanced growth: Understanding the sectoral structure of the South African economy," Economic Modelling, Elsevier, vol. 72(C), pages 177-189.
    14. Castillo, Luis & Florián, David, 2019. "Measuring the output gap, potential output growth and natural interest rate from a semi-structural dynamic model for Peru," Working Papers 2019-012, Banco Central de Reserva del Perú.
    15. P. Burger & M. Marinkov, 2006. "The South African Phillips Curve: How Applicable Is The Gordon Model?," South African Journal of Economics, Economic Society of South Africa, vol. 74(2), pages 172-189, June.
    16. Johannes W. Fedderke, 2022. "Identifying supply and demand shocks in the South African Economy, 1960–2020," South African Journal of Economics, Economic Society of South Africa, vol. 90(3), pages 349-389, September.
    17. Mr. Jiaqian Chen & Lucyna Gornicka, 2020. "Measuring Output Gap: Is It Worth Your Time?," IMF Working Papers 2020/024, International Monetary Fund.
    18. Christian Glocker & Serguei Kaniovski & Philipp Wegmüller, 2026. "Estimating a weighted output gap for Switzerland: methodology and application," Swiss Journal of Economics and Statistics, Springer;Swiss Society of Economics and Statistics, vol. 162(1), pages 1-25, December.
    19. J. Bradford De Long & Lawrence H. Summers, 1988. "On the Existence and Interpretation of the "Unit Root" in U.S. GNP," NBER Working Papers 2716, National Bureau of Economic Research, Inc.
    20. Ekaterina Pirozhkova & Jeffrey Rakgalakane & Luchelle Soobyah & Rudi Steinbach, 2023. "Enhancing the Quarterly Projection Model," Working Papers 11048, South African Reserve Bank.

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:rbz:wpaper:8605. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Jessica VanWyk (email available below). General contact details of provider: https://edirc.repec.org/data/rbagvza.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.