Public Revenue‐Expenditure Nexus in South Africa: Are there Asymmetries?

This paper re‐examines the government revenue and expenditure relationship in South Africa using Enders and Siklos' Threshold adjustment and Granger causality tests. The paper allows for structural breaks in the unit root and cointegration tests. The results indicate the absence of any asymmetries in both the threshold autoregression and momentum threshold autoregression specifications of adjustments in the South African's budgeting process. The estimated symmetric error‐correction models provide support for the fiscal synchronization hypothesis of government revenues and expenditures for long‐run and short‐run dynamic equilibrium. These findings indicate that the South African fiscal authorities should try to maintain or even improve the control of their fiscal policy instruments to sustain the prudent budgetary process.     

Do Monetary Policy Announcements Affect Exchange Rate Returns and Volatility of Returns? Some Evidence from High‐Frequency Intra‐Day South African Data

This paper examines the temporal effect of domestic monetary policy surprises on both returns and volatility of returns of the South African rand/U.S. dollar exchange rate. The analysis in this “event study” proceeds using intra‐day minute‐by‐minute exchange rate data, repo rate data from the South African Reserve Bank's scheduled monetary policy announcements, and market consensus repo rate forecasts. A carefully selected sample over the period August 2003 to November 2017 ensures that the change in monetary policy is exogenous to the exchange rate. We find statistically and economically significant responses in intra‐day high‐frequency South African rand/U.S. dollar exchange rate returns and volatility of exchange rate returns to domestic interest rate surprises, but anticipated changes have no bearing on exchange rate returns and their volatility. The empirical results also indicate that there is an instantaneous response of the rand/dollar exchange rate to monetary policy surprises and that monetary policy news is an important determinant of the exchange rate until at least 42 minutes after the pronouncement – suggesting a high degree of market “efficiency” in its mechanical sense (although not necessarily in the deeper economic‐informational sense) in processing this information. Essentially, the asymmetric GARCH results exhibit no leverage effects – positive and negative information shocks have symmetric effects on conditional variance.     

Inflation-Output Trade-Off in South Africa: Is the Phillips Curve Symmetric?

This study sets out to investigate whether the inflation-output trade-off in South Africa is symmetric or asymmetric; and if asymmetric, whether it is convex or concave. A New Keynesian dynamic stochastic general equilibrium model calibrated on South African data reveals that a negative demand shock reduces inflation and output while a positive demand shock of the same magnitude leads to a smaller increase in inflation and a larger increase in output, indicating that the inflation–output relationship in the country is concave asymmetric. These findings corroborate estimation results of the inflation-expectations augmented Phillips curve conducted using difference GMM on quarterly data.     

Why Do Property‐Liability Insurers Destroy Liquidity? Evidence from South Africa

This paper examines liquidity creation behaviour in the property‐liability insurance market in South Africa. Using annual data on 76 insurers from 2007 to 2014, the paper employs the three‐stage approach to estimate liquidity creation. The results suggest that property‐liability insurers are characterised by liquidity destruction by transforming liquid assets in cash and investable securities into illiquid reserves liabilities. The findings also indicate that the R1.32 billion in liquid assets were transformed into illiquid reserves liabilities in 2014, an increase from the R700 million liquidity de‐created in 2007. The increases were mainly driven by large insurers which accounted for about 70% liquidity de‐created. The results of panel regression analysis provide evidence in support of the “risk‐absorption” hypothesis which argues that high levels of capital increases liquidity creation. In addition, size, leverage and reinsurance were also identified as the firm‐level factors that explain liquidity creation. The policy implications of the findings are discussed.     

Aid and Poverty in Africa: Do Well‐being Measures Understate the Progress?

Abstract: In the last 15 years international aid donors to Africa have shifted their focus dramatically toward health and education; the share of social sector support in total aid rose from 33 per cent to 60 per cent from 1990–94 to 2000–2004 alone. If this aid has been effective, it is unlikely to be captured in GDP or income poverty figures. This paper uses the Demographic and Health Survey at multiple points in time to explore changes in well‐being in ten sub‐Saharan African countries. It compares the evolution of both assets and health which are considered as the two main dimensions of well‐being. These dimensions are simultaneously estimated using the structural equation models with latent variables that have been developed in the psychometric literature. The comparisons of well‐being across time in each country are based on the stochastic dominance analysis. The main results suggest that assets and health have improved during the last two decades in most of these countries. A decline in assets is observed for three countries while health deteriorates in two countries. The reduced poverty appears to be explained less by the aid than other factors in most cases.     

On the Disadvantages of Raising RMB Exchange Rate

Recently, a monetary dispute about RMB exchange rate is increasingly becoming a hot topic among China, United States and Japan, which covers Chinese RMB exchange rate policy, national regime and diplomatic systems. As a developing country, China has to keep RMB stable at an appropriate and balanced level, which is conducive to economic stability and development not only of China but also of the Asia-Pacific region and the world at large.     

What to Target? Inflation or Exchange Rate

This study empirically compares, for the first time, the popular exchange‐rate–targeting regime with the recently emerged inflation‐targeting framework in developing countries. Applying a variety of propensity score matching methods and dynamic panel generalized method of moments (GMM) regressions to a sample of 50 developing countries for the years 1990–2006, we find strong and robust evidence that, compared to exchange‐rate targeting, inflation targeting leads to a significantly lower inflation rate, and the lower inflation rate does not come at a cost of slower growth.     

Leading Indicators of Currency Crises: Are They the Same in Different Exchange Rate Regimes?

We investigate whether leading indicators of currency crises differ across exchange rate regimes using data for 88 countries in the period 1981–2010. Our estimates suggest that in fixed exchange rate regimes external indicators, such as deviations of the real exchange rate from trend and the growth of international reserves, have the strongest predictive power. In contrast, in floating exchange rate regimes monetary policy and credibility indicators, such as domestic credit growth and inflation, are the best leading indicators of currency crises. Both credibility and external economic indicators have predictive power in intermediate exchange rate regimes.     

Does Productivity in the Formal Food Sector Drive Human Ebola Virus Infections in Sub‐Saharan Africa?

As the hunting, butchering, processing, and consumption of bushmeat is a potential source of human Ebola virus (EV) infections, the extent to which bushmeat is a substitute for food produced and sold in the formal sector suggests that the relative price of food could matter for the incidence of human EV infections. This paper considers if productivity in the food sector is a driver of human EV infections in sub‐Saharan Africa. We estimate count data specifications of country level human EV infections as a function of food sector productivity in sub‐Saharan Africa over the 1976–2013 time period. Our parameter estimates suggest that if productivity in the food sector was on average 1 per cent higher over the 1976–2013 time period, the incidence of human EV infection would have been 42.5 per cent lower. This is consistent with bushmeat being a substitute for food produced in the formal sector, as food productivity increases lower the price of formal food relative to bushmeat. Our findings suggest that as productivity in the formal food sector is a driver of human EV infections in sub‐Saharan Africa, policy interventions that increase food productivity would enable Millennium Development Goal outcomes related to hunger, disease mitigation, and sustainability of wildlife.     

What Drives Monetary Policy in Post-Crisis East Asia? Interest Rate or Exchange Rate Monetary Policy Rules

This paper estimates a simple small open macroeconomic model to analyse the effectiveness of monetary policy rules (MPRs) where either the nominal interest rate or the nominal exchange rate is the policy instrument. The aim is to ascertain which of those MPRs are best suited for a selection of inflation targeting economies of Asia. Normally, one would associate inflation targeting with interest rate rules but it is thought that, due to fear of floating, exchange rate rules may well be more effective given the openness of these economies. It is found that interest rate rules seem to better reflect the prevailing policy regime than exchange rate rules. It is also found that stronger relationships pertaining to the interest rate rules are found in the case of Korea and Thailand than for Indonesia and the Philippines. Exchange rates appear to be very influential in determining the value of the nominal interest rate but not in a policy sense.     

Broiler production in South Africa: Is there space for smallholders in the commercial chicken coup?

It is agreed that agriculture provides avenues for impoverished households to produce and trade their way out of poverty. However, this requires market access and value chain integration of small-scale farmers. This paper explores the possibilities for integration of small-scale farmers into the mainstream commercial broiler value chain in South Africa. Production costs of small-scale producers are evaluated within the context of their commercial counterparts, with a case study approach. It revealed that small-scale producers pay more for inputs but also receive a substantial premium for sales of live birds in the informal market. This results in attractive gross margins for small-scale producers. There is, however, a production ceiling, due to demand and production considerations, associated with small-scale broiler production. This ultimately results in a dualistic industry with an informal (live sale) value chain at the one end of the spectrum and a sophisticated large-scale commercial value chain at the other. Given the salient production features and investment requirements associated with large-scale broiler production, organic growth from the small-scale value chain into the commercial value chain seems improbable. The dual nature of this industry should therefore be considered when developing policy geared towards development, poverty alleviation and value chain integration.     

Will Ageing Lead to a Higher Real Exchange Rate for the Netherlands?

Long term projections for the Netherlands indicate that demand for nontradables—e.g. health care services—will increase relative to supply due to population ageing. If this leads to higher future real exchanges rates this will erode the return of the savings currently made to prepare for ageing. This paper explores the magnitude of potential price effects using a modified version of the two country, four commodity framework developed by Obstfeld and Rogoff (Brookings Papers Econ Activity 1:67–146, 2005) to explore the exchange rate effects of the balance of payments reversal in the US. When these price effects are substantial this may have serious consequences for policies to enhance national saving in the Netherlands.