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Fiscal r-star and macroeconomic coordination in South Africa

Author

Listed:
  • Roy Havemann

    (Bureau for Economic Research)

  • Hylton Hollander

    (University of Cape Town)

Abstract

South Africa’s fiscal and monetary authorities now operate in a more difficult environment than they did a decade ago. Debt has risen, growth has disappointed, and sovereign risk premia have remained elevated. At the same time, inflation has fallen and the policy debate has shifted toward whether lower inflation can support growth. Our research shows that these developments are tightly connected.This brief is based on the ERSA working paper and a forthcoming South African Journal of Economics article, “Monetary-fiscal coordination in South Africa: Aligning the stars.” The paper introduces a new policy concept for South Africa: the fiscal-neutral real interest rate, or fiscal r-star. This is the real interest rate consistent with keeping the debt-to-GDP ratio stable for a given primary balance, growth rate, and debt stock. We compare this with the usual monetary r-star, the real interest rate consistent with inflation at target and output at potential.

Suggested Citation

  • Roy Havemann & Hylton Hollander, 2026. "Fiscal r-star and macroeconomic coordination in South Africa," ERSA Working Paper Series 302, Economic Research Southern Africa.
    • Handle: RePEc:rza:ersawp:302
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    File URL: https://ersawps.org/index.php/working-paper-series/article/view/302/191
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    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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