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Important Channels of Transmission Monetary Policy Shock in South Africa

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  • Nombulelo Gumata, Alain Kabundi and Eliphas Ndou

Abstract

This paper investigates the di¤erent channels of transmission of monetary policy shock in South Africa in a data-rich environment. The analysis contains 165 quarterly variables observed from 1990Q1 to 2012Q2. We use a Large Bayesian Vector Autoregressive model, which can easily accommodate a large cross-section of variables without running out of degree of freedom. The benefit of this framework is its ability to handle different channels of transmission of monetary policy simultaneously, instead of using different models. The model includes five channels of transmission: credit, interest rate, asset prices, exchange rate, and expectations. The results show that all channels seem potent, but their magnitudes and importance differ. The results indicate that the interest rate channel is the most important transmitter of the shock, followed by the exchange rate, expectation, and credit channels. The asset price channel is somewhat weak.

Suggested Citation

  • Nombulelo Gumata, Alain Kabundi and Eliphas Ndou, 2013. "Important Channels of Transmission Monetary Policy Shock in South Africa," Working Papers 375, Economic Research Southern Africa.
  • Handle: RePEc:rza:wpaper:375
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    Cited by:

    1. Kabundi, Alain & Schaling, Eric & Some, Modeste, 2015. "Monetary policy and heterogeneous inflation expectations in South Africa," Economic Modelling, Elsevier, vol. 45(C), pages 109-117.
    2. 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.
    3. Johannes PS Sheefeni, 2017. "Monetary Policy Transmission Mechanism in Namibia: A Bayesian VAR Approach," Journal of Economics and Behavioral Studies, AMH International, vol. 9(5), pages 169-184.

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    More about this item

    Keywords

    Bayesian VAR; Monetary policy transmission; Balance sheets; large;
    All these keywords.

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods

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