THE PROPERTIES OF CYCLES IN SOUTH AFRICAN FINANCIAL VARIABLES AND THEIR RELATION TO THE BUSINESS CYCLE

The paper describes cyclicality in a range of local and international financial variables and their relation to cyclical behaviour in the South African real economy. Cycles are derived using a dating algorithm similar to that used to determine business cycle turning points and falls within the Burns‐Mitchell tradition of business cycle analysis. Co‐movement between phases in financial variables and similar phases in the business cycle are described using the concordance statistic, instead of the correlation statistic (which requires stationarity). This is a preliminary step in identifying financial variables that can act as leading indicators of economic activity.     

SYNCHRONISATION BETWEEN SOUTH AFRICA AND THE U.S.: A STRUCTURAL DYNAMIC FACTOR ANALYSIS

This paper studies the synchronisation of the South African and the US cycles and transmission channels through which supply and demand shocks from the US affect economic activity in South Africa in a structural dynamic factor model framework. We find, using the full-sample period, US supply shocks are transmitted to South Africa through business confidence and imports of goods and services; while US demand shocks are transmitted via interest rates, stock prices, exports of goods and services, and real effective exchange rates. Second, there is a decrease in integration over time translated by a drop in synchronisation of cycles. The impact of an increase in comovement of GDP is outweighed by the structural reforms initiated by the government after the end of apartheid. Finally, the idiosyncratic component still plays an important role in the South African economy.     

PATTERNS OF CO‐MOVEMENT BETWEEN SOUTH AFRICA AND GERMANY: EVIDENCE FROM THE PERIOD 1985 TO 2006

This paper examines the co‐movement between Germany and South Africa by applying a dynamic factor model. Because these two countries have a long history of predominant trade ties, they deemed to be suitable proxies to analyse the channels of transmission of positive supply and demand shocks in a developed economy and the effects of these on an emerging market economy. In contrast to general expectations, the paper concludes that a German supply shock has more of a demand‐shock effect on the South African economy, while a German demand shock is transmitted through price in South Africa. This implies that the policy response in South Africa should not necessarily be the same as in Germany.