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Fiscal policy and commodity price shocks in South Africa

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  • Tumisang Loate
  • Vincent Dadam

Abstract

This paper investigates the effect of commodity price shocks in a commodity-exporting small open economy, and the role of fiscal policy in transmitting these shocks to the rest of the economy. Using South African data, we first estimate an empirical model using a Bayesian vector autoregression model. We then develop a New Keynesian small open economy with labour market hysteresis and commodity price shocks. We find that a commodity price shock typically has an expansionary effect as real GDP and employment increase, which translates into higher tax revenue.

Suggested Citation

  • Tumisang Loate & Vincent Dadam, 2025. "Fiscal policy and commodity price shocks in South Africa," WIDER Working Paper Series wp-2025-22, World Institute for Development Economic Research (UNU-WIDER).
    • Handle: RePEc:unu:wpaper:wp-2025-22
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    References listed on IDEAS

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    1. Olivier Blanchard & Jordi Galí, 2010. "Labor Markets and Monetary Policy: A New Keynesian Model with Unemployment," American Economic Journal: Macroeconomics, American Economic Association, vol. 2(2), pages 1-30, April.
    2. Blanchard, Olivier J. & Summers, Lawrence H., 1987. "Hysteresis in unemployment," European Economic Review, Elsevier, vol. 31(1-2), pages 288-295.
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