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The properties of cycles in South African financial variables and their relation to the business cycle

  • Willem Boshoff

    ()

    (Department of Economics, Stellenbosch University)

Linkages between the financial and real sectors of the economy have been studied extensively over the past twenty years to enhance business cycle forecasting on the one hand and improve portfolio allocation on the other. The broad aim of the paper is to investigate the relationship between cycles in the real economy and cycles in several financial variables from the South African money, bond and stock markets for the period from 1986 onwards. The paper will aim to describe the properties of cycles in such financial variables, where cycles were derived using a dating algorithm similar to that used to determine business cycle turning points. This method is consistent with the Burns and Mitchell tradition of business cycle analysis, but in contrast with the dominant approach in academic research, i.e. deviation cycles relying on time-series detrending. Consequently, the paper will attempt to relate phases in the cycles of financial variables with business cycle phases to establish which variables satisfy preliminary requirements for leading indicators of the business cycle. The paper will consider both classical cycles as well as cycles in the growth rate of the different variables and include international variables, due to the potential importance of international developments for financial markets in an open economy.

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File URL: http://www.ekon.sun.ac.za/wpapers/2005/wp022005/wp-02-2005.pdf
File Function: First version, 2005
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Paper provided by Stellenbosch University, Department of Economics in its series Working Papers with number 02/2005.

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Date of creation: 2005
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Handle: RePEc:sza:wpaper:wpapers13
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  1. Marco Del Negro, 2001. "Turn, turn, turn: Predicting turning points in economic activity," Economic Review, Federal Reserve Bank of Atlanta, issue Q2, pages 1-12.
  2. Harding, Don & Pagan, Adrian, 2002. "Dissecting the cycle: a methodological investigation," Journal of Monetary Economics, Elsevier, vol. 49(2), pages 365-381, March.
  3. Canova, Fabio, 1998. "Detrending and business cycle facts," Journal of Monetary Economics, Elsevier, vol. 41(3), pages 475-512, May.
  4. C John McDermott & Alasdair Scott, 1999. "Concordance in business cycles," Reserve Bank of New Zealand Discussion Paper Series G99/7, Reserve Bank of New Zealand.
  5. Michael Artis & Massimiliano Marcellino & Tommaso Proietti, 2003. "Dating the Euro Area Business Cycle," Working Papers 237, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  6. Harding, Don & Pagan, Adrian, 2001. "Extracting, Using and Analysing Cyclical Information," MPRA Paper 15, University Library of Munich, Germany.
  7. Stan du Plessis, 2005. "Reconsidering the business cycle and stabilisation policies in South Africa," Working Papers 10, Economic Research Southern Africa.
  8. Stan du Plessis, 2006. "Business Cycles in Emerging market Economies: A New View of the Stylised Facts," Working Papers 02/2006, Stellenbosch University, Department of Economics.
  9. Elna Moolman & Johannes Jordaan, 2005. "Can Leading Business Cycle Indicators Predict The Direction Of The South African Commercial Share Price Index?," South African Journal of Economics, Economic Society of South Africa, vol. 73(1), pages 68-78, 03.
  10. Marcelle Chauvet & Simon Potter, 2005. "Forecasting recessions using the yield curve," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 24(2), pages 77-103.
  11. Marcelle Chauvet & James D. Hamilton, 2005. "Dating Business Cycle Turning Points," NBER Working Papers 11422, National Bureau of Economic Research, Inc.
  12. Moolman, Elna, 2004. "A Markov switching regime model of the South African business cycle," Economic Modelling, Elsevier, vol. 21(4), pages 631-646, July.
  13. Andreou, Elena & Osborn, Denise R & Sensier, Marianne, 2000. "A Comparison of the Statistical Properties of Financial Variables in the USA, UK and Germany over the Business Cycle," Manchester School, University of Manchester, vol. 68(4), pages 396-418, Special I.
  14. Adrian Pagan & Don Harding, 2005. "A suggested framework for classifying the modes of cycle research," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 20(2), pages 151-159.
  15. Adrian R. Pagan & Kirill A. Sossounov, 2003. "A simple framework for analysing bull and bear markets," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 18(1), pages 23-46.
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