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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
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    References listed on IDEAS

    as
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    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.

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