Eliphas Ndou

• BSc, B Econ Sc, MCOM and PhD in Economics
• Economist at University of the Witwatersrand and South African Reserve Bank. Pretoria, South Africa

We estimate vector autoregressive models to examine the effect of the 3 to 6 per cent inflation target band in the inflation and income inequality nexus in South Africa. We use quarterly data spanning 1993Q1 to 2016Q3 to analyse how growth in income inequality responds to positive inflation shocks when inflation is within the 3 to 6 per cent target...

This paper estimates the long-run impact of the exchange rate depreciation on GDP in South Africa and whether it changed after the 2008 global financial crisis. The paper further determines whether certain channels amplified or dampened the transmission of exchange rate deprecation to GDP after the crisis. The long-run relationship estimated using...

This chapter explored whether the increase in the government debt levels has an impact on credit conditions, business and consumer confidence, and the components of GDP. Evidence reveals that a positive standard deviation in government gross loan debt toGDP rationleads to a significant tightening in credit conditions. In turn, the unexpected tighte...

This chapter examined whether economic policy uncertainty explains the employment dynamics and the reallocation of employment shares between the private and public sectors in South Africa during the inflation targeting period. The results show that an unexpected rise in economic policy uncertainty significantly lowers the total non-agricultural emp...

Do positive government debt-to-GDP (debt-to-GDP) shocks lead to higher investment growth? Evidence in this chapter shows that real GDP growth, formal non-agriculture employment growth, and investment growth decline in response to positive debt-to-GDP ratio shocks. The results of a decline in employment growth are robust, as we establish that the pr...

This chapter explored the macroeconomic effects of positive shocks to the interest rate-GDP growth differential. It further assessed whether positive and negative interest rate-GDP growth differential regimes exert different macroeconomic effects. We find that government debt and ten-year yields increase in response to positive shocks to the intere...

This chapter sets the scene for the analysis contained in this book by presenting a synopsis of fiscal policy and the macroeconomy during the period 1994–2020. What do the last 34 years suggest about the fiscal policy framework? Did it perform as expected in supporting South Africa to absorb asymmetric unexpected shocks? Did the countercyclical fis...

Do government debt regimes matter for the macroeconomy? We find that ten-year government bond yields decline, the rand per US dollar (R/US$) exchange rate appreciates, and inflation declines in response to a positive shock to the government debt-to-GDP ratio in the low debt regime. In addition, real GDP growth, employment growth, and investment gro...

What are the effects of positive budget deficit shocks on inflation and inflation expectations? We find that inflation and inflation expectations across the spectrum increase in response to positive budget deficit shocks. Current inflation expectations increase more due to positive budget deficit shocks. Using the −3 per cent budget deficit as a ra...

What are the effects of economic and policy uncertainty on government bond yields and the credit default swap spreads? Furthermore, does economic and policy uncertainty propagate the effects of widening budget deficits on ten-year yields and the credit default swap spreads? We find that positive shocks to the global economic and policy uncertainty...

This chapter sought to investigate the level at which rising government debt starts to have adverse effects on fixed capital formation. The chapter performs an iterative procedure to determine the band within which rising gross government loan debt to nominal GDP ratio has (i) positive crowding-in effects, (ii) no effects, and (iii) negative crowdi...

This chapter explored the impact of positive budget deficit shocks on investment growth and employment growth, and whether the interest rate, business and consumer confidence channels amplify or dampen these effects. We find that investment growth and employment growth decline due to positive budget deficit shocks, whereas the current account defic...

This chapter presents a summary of the main findings and policy implications contained in the book. This book examined the role of various fiscal policy shocks and their impact on the macroeconomy in South Africa. The fiscal policy stance measured in the form of the budget deficit, government debt-to-GDP ratio, government debt growth, and the cycli...

How does a persistent increase in the budget deficit impact real interest rates? Do high budget deficit regimes propagate the negative effects of inflationary pressures? We find that the real ten-year yield increases in response to a positive shock to the budget deficit while output, investment, and employment growth decline. This implies that posi...

This chapter explores whether the adoption of the 3 to 6 per cent inflation targeting band changed the structural relationship between government debt and capital formation in South Africa. Evidence shows that the magnitude of crowding-out effects is smaller when inflation is below 6 per cent and within 3 to 6 per cent, compared to above the 6 per...

This chapter explored whether the increase in interest payments dampens the effectiveness of the accommodative fiscal policy shocks. We find that the responsiveness of output growth to the budget deficit and government expenditure growth shocks has systematically weakened over time. Positive interest payment shocks lead to a decline in nominal outp...

This chapter explored whether the increase in the government debt levels has an impact on credit conditions, business and consumer confidence, and the components of GDP. Evidence reveals that a one per cent positive in government loan debt to nominal GDP leads to a significant tightening in credit conditions. In turn, the unexpected tightening in c...

What are the macroeconomic effects of budget deficits? Do budget deficit thresholds matter? We find that the yield on the ten-year government bond increases in response to positive budget balance shocks. Real output growth, investment growth, and employment growth decline in response to positive budget balance shocks. The rnad per US dollar (R/US$)...

This chapter examines the effects of economic policy uncertainty on the employment dynamics within the context of price stability in South Africa. We find that positive economic policy uncertainty shocks significantly lower total non-agricultural and sector total employment. A counterfactual analysis reveals that the price stability and improved mo...

Does the interest rate channel impact the relationship between the positive government loan debt to GDP ratio shock and capital formation in South Africa? The results indicate that positive government debt shocks crowd out capital formation. The findings of the crowding-out effects are robust to different model specifications and different ordering...

How do the debt-to-GDP ratio, investment growth and employment growth respond to high nominal GDP (NGDP) growth regimes? We find that positive NGDP growth shocks in the high growth regimes result in differing degrees of decline in the debt-to-GDP ratio and increases in investment growth and employment growth. The difference between the responses in...

This paper estimates and contrasts the effects of contractionary monetary policy shocks on output in South Africa and South Korea, using a sign restriction VAR approach. I use quarterly data spanning 1980Q1 to 2010Q3. I investigate how much output movements are induced by monetary policy shocks. The main findings reveal that contractionary monetary...

This paper examines the long run effects of the exchange rate changes on export volumes in South Africa under the inflation targeting period using the Johansen cointegration and the Engle-Granger approaches. This paper further examines whether the 2007 global financial crisis, rising government debt, and cost of credit post 2008Q4 impacted the magn...

The South African Reserve Bank adopted a flexible inflation-targeting framework in February 2000 and has maintained an official inflation target band of 3–6% from inception. The effect of the target band on the exchange rate passthrough (ERPT) to headline consumer price inflation in South Africa has not been empirically evaluated. Hence, this study...

This chapter explores the effects of a required reserves (RR) ratio tightening shock and excess liquid asset holdings (LAH) on liquidity, funding and consumer interest rates. We establish the existence of an RR ratio cost channel, meaning that the tightening in the RR ratio imposes a cost on bank intermediation. The effects of the RR ratio on consu...

Do synchronised boom episodes in credit growth, commodity price growth and equity price growth impact the response of the repo rate to positive inflation shocks? Yes, they do. Evidence shows that the synchronised boom episodes lead to larger repo rate changes than what the counterfactual responses suggest. The positive amplification magnitudes indi...

Do capital inflows relieve credit constraints by loosening credit conditions? First, we establish that high (low) levels of non-performing loans and tight (loose) credit conditions result in low (high) credit growth. Tight credit conditions post-2007Q3 led to a lower transmission of positive portfolio banking shocks into credit growth. However, loo...

What is the impact of the excess capital adequacy ratio (CAR) on excessive credit growth and inflationary pressures? Did excess CAR neutralise the repo rate adjustments? Evidence shows that excess CAR dampens the impact of demand shocks on credit growth and GDP growth in line with the intended primary purpose of countering the amplitude and duratio...

Do positive shocks to the South African Reserve Bank (SARB) balance sheet impact non-residents’ activity in the domestic financial markets, especially the bond market? We find that a positive shock to SARB assets growth depresses non-residents’ cumulative net purchases of domestic shares and bonds, especially the purchase of bonds. The results also...

Does economic policy uncertainty impact real money demand in South Africa? Evidence reveals that elevated economic policy uncertainty lowers real money demand and that the credit conditions channel and inflation regimes matter for the transmission of such shocks. The results show that inflation declines due to positive economic policy uncertainty s...

Does an unexpected tight monetary policy shock induce households to cut the incurrence of liabilities and the acquisition of financial assets? We find that a positive GDP shock leads to an increase in the consumer price level and repo rate. The repo rate increases to curb inflation, consistent with a forward-looking monetary policy conduct that mit...

How effective is the relaxation of the countercyclical capital buffer (CCyB) at a time when other residential macro-prudential tools are tight? Evidence in this chapter shows that GDP growth increases in response to loosening in the mortgage market credit conditions index (MMCI) while the excess capital adequacy ratio (CAR), the repo rate and the l...

Is there a case for the Public Investment Corporation (PIC) to increase its holdings of government debt securities? Yes, there is. We find that incremental positive shocks to the share (stock effects) and growth rate (flow effects) of government bonds in the PIC balance sheet result in a decline in the ten-year government bond yield. Large positive...

Has the inflation target band impacted the natural rate of unemployment (NAIRU) in South Africa based on the accelerationist Philips curve? Furthermore, to what extent can the expansionary monetary policy impact the unemployment rate above the NAIRU when using the 4.5 per cent inflation threshold? Evidence in this chapter suggests that monetary pol...

Do the shortfalls and overhangs derived from money demand in South Africa augmented with portfolio balances impact inflation dynamics? The vector error correction model (VECM) results indicate that augmenting the money demand function with asset price returns leads to a lower point elasticity for GDP. The augmented money demand functions can explai...

What are the implications of tighter credit conditions on how the repo rate responds to positive inflation shocks? Evidence shows that credit conditions shocks induce less variation in inflation compared to those due to the repo rate shocks. But credit conditions induce more fluctuations in GDP growth compared to the repo rate. Furthermore, we find...

Does the GDP growth channel amplify the effects of contractionary fiscal policy on credit growth? Evidence shows that a positive tax shock has an adverse effect on credit growth. The decline in credit growth is more than that of GDP growth due to a positive tax shock. Furthermore, credit growth responses to spending cut shocks are larger and spendi...

Evidence reveals that an unexpected increase in the South Africa-United States (SA-US) interest rate differential lowers SA economic growth. The actual decline in economic growth is lower than the counterfactual suggests. This implies that the increase in the capital inflows following an unexpected increase in the SA-US interest rate differential d...

Are excess capital adequacy ratio (CAR) and excess liquid asset holdings (LAH) of banks conduits in the transmission of capital inflows and outflow shocks on credit growth and the reallocation of sectorial credit shares? Evidence in this chapter establishes that high excess CAR and excess LAH post-2008 coincided with the decline in the share of cre...

This chapter investigates the extent to which the exchange rate deprecation and volatility shocks drive money demand in South Africa. Evidence indicates that the exchange rate depreciation reduces money demand, and this supports the prevalence of the currency substitution effect. Furthermore, the decline in money demand is accentuated by elevated e...

Do foreign currency reserves accumulation programmes contribute to GDP growth and employment growth? Yes, they do. Evidence shows that GDP growth and employment growth increase in response to positive shocks to foreign currency reserves (forex reserves) accumulation, whereas unemployment declines. The counterfactual historical contributions for the...

This chapter presents a preliminary review of the central bank balance sheet tools that can be deployed to assist in the achievement of price, financial and macro-economic stability in South Africa. The chapter discusses the key channels through which large-scale asset purchases (quantitative easing) are transmitted and whether the size, duration a...

Is there a compelling case to increase the South African Reserve Bank (SARB) holdings of government securities to supplement interest income and neutralise losses due to foreign investments and foreign currency reserves accumulation? Evidence in this chapter establishes that there is. We find that an increase in SARB holdings of government securiti...

Do the double thresholds exert asymmetric effects on GDP growth, inflation and household consumption growth? We establish that lower and upper threshold levels for aggregate credit growth, sectorial credit growth and mortgage credit growth occur around 9.2 per cent and 12.7 per cent, respectively. We use these thresholds to classify credit growth r...

This chapter explores the interaction of various monetary and macro-prudential tools and their effects on the macro-economy and the price stability mandate. We assess the different effects of the tightening in the banks’ required reserves (RR) ratio, an unexpected increase in excess liquid asset holdings (LAH) and the accumulation of foreign curren...

Is a single sectorial credit growth threshold too restrictive? The results show that in cases where household (corporate) credit growth is below 9.5 (9.2) per cent, GDP growth tends to peak at a higher rate compared to when household (corporate) credit growth is above 12.45 (12.6) per cent. The difference is due to inflation responses. Inflation in...

Does the excess or shortfall in money demand affect the transmission of the rand exchange rate depreciation shocks to inflation? If so, does this depend on whether the money demand function includes or excludes wealth variables? The results show that the extension of the money demand functions via the wealth channel and portfolio-balance approaches...

Do the excess liquid asset holdings (LAH) of banks matter for the transmission of adverse financial shock effects to credit growth and GDP growth? The increase in excess LAH moved one-to-one with credit growth to government. Evidence shows that an adverse financial shock lowers credit growth and GDP growth and excess LAH resulted in a more pronounc...

Do non-performing loans (NPLs) propagate the effect of tight monetary policy on credit growth and induce sectorial credit shifts? Have the amplification capabilities of NPLs changed pre-2008 and post-2008? Evidence shows that the deterioration in the banks’ credit books and the increase in credit risk exacerbate the effects of an adverse financial...

Do large-scale asset purchases affect activity in the primary and secondary share and bond markets? Evidence in this chapter shows that the primary and secondary bond and share market activity indicators increase in response to positive South African Reserve Bank (SARB) asset growth shocks. Furthermore, the results indicate that incremental positiv...

Is the interest rate corridor an effective instrument to dampen the accumulation of excess reserves and inter-bank rate volatility? Yes, it is. We find that the interbank rates volatility is dependent on excess reserves regimes. The overnight forex rate volatility increases more compared to the South African overnight rate (Sabor) in response to po...

To what extent do synchronised credit growth and house price growth boom episodes impact the policy response to inflationary pressures? We establish that GDP growth tends to have low-frequency cycles compared to the financial cycles. Real and financial cycles have become more synchronised post-2000. Evidence shows that household credit growth contr...

Evidence in this chapter reveals that a positive standard deviation increase in government debt to GDP leads to a significant tightening in credit conditions. The unexpected tightening in credit conditions leads to a significant contraction in GDP, household consumption, gross fixed-capital formation, business and consumer confidence. The counterfa...

This chapter assesses whether household debt growth regimes lead to subsequent lower output growth and higher unemployment. Mian et al. (2015) establish that household debt is a source of instability and lower economic growth. First, we establish that on a bilateral basis, household debt growth explains 60 per cent of changes in GDP growth. Second,...

Do government debt regimes impact the effects of large-scale asset purchases (LSAPs)? We find that government debt growth regimes matter for the response of ten-year government bond yields, interest costs, R/US$ exchange rate and inflation. Long-term government bond yields, interest costs and inflation increase more in response to positive shocks t...

To what extent are the net private and public sector financial asset flows impacted by a tight monetary policy shock? Evidence shows that the net public sector deficit (surplus) should be offset by the net private sector surplus (deficit). In contrast, the private sector experienced an intermittent surplus funds suggesting that it is a net lender....

The findings in the book indicate that there is a need for the co-ordination of financial regulation, macro-prudential tools and the South African Reserve Bank (SARB) balance sheet tools to assist in the achievement of price, financial and macro-economic stability mandates. Evidence presented in the book shows that there needs to be a structural ch...

Are the stock effects of large-scale asset purchases more potent and persistent relative to the flow effects? We find that positive shocks to the level of South African Reserve Bank (SARB) assets lower yields on long-term government, the unemployment rate, Gini coefficient and the ratio of government interest cost to its expenditure. The channels o...

Do large-scale asset purchases (LSAPs) of government securities by the South African Reserve Bank (SARB) curb excess liquid asset holdings (LAH) by private banks? Yes, they do. Using a TVAR model, we find that LSAPs by the SARB result in a decline in the excess LAH liquid asset by private banks. In addition, evidence shows that bank credit to gover...

This paper examines the long-run and short-run effects of the exchange rate changes on the net trade balance in South Africa and compares the effects to those induced by the foreign and domestic price and income effects. Using annual data from 1970 to 2019 and the autoregressive distributed lags bounds testing approach, evidence shows that the long...

This book explores the macro-financial effects of central bank balance sheets, macro-prudential tools, and financial regulation in South Africa. How employment can be maximised while keeping inflation low and stable is examined in relation to the structural changes required to alter the composition of South African bank balance sheets. Quantitative...

This book examined the secular decline of the South African manufacturing sector with the intention of deriving policy interventions that will stem the decline. In the process, the book laid bare the missing links and gaps in academic and policy discussions regarding the necessary policy interventions in the manufacturing sector. We used data trend...

What is the impact of heightened economic policy uncertainty and adverse financial conditions on the manufacturing sector? Evidence in this chapter shows that the manufacturing sector output growth, investment growth and employment growth decline in response to heightened economic policy uncertainty and adverse financial conditions. In addition, th...

What is the impact of selected financial regulation and macro-prudential tools on credit to the manufacturing sector? We find that the countercyclical capital buffer (CCyB), excess liquid asset holdings (ELAH) of banks, loan-to-value ratio (LTV) and repayment-to-income (RTI) ratio lead to an increase in credit growth to the manufacturing sector and...

Do positive investment shocks in the manufacturing sector result in increased labour absorption and participation rates? We find that manufacturing sector output growth and employment growth are highly responsive to positive investment growth shocks. The increase in the manufacturing sector employment growth due to positive investment growth shocks...

Does the persistent widening in the trade deficit explain the decline in the manufacturing sector output and employment growth? We find that the trade balance deficits and surpluses exert opposing effects on the manufacturing sector output growth and employment growth. Furthermore, the trade deficit (surplus) channel amplifies the decline (increase...

What is the impact of imports by stage of production and the manufacturing sector investment growth? We find that the manufacturing sector output growth, investment growth and employment growth decline in response to positive shocks to the importation of capital and intermediate goods growth. This contrasts with the increase due to the importation...

Does an increase in trade-openness and import-penetration affect income inequality? We find that the manufacturing sector output growth and employment growth decline in response to positive trade-openness and import penetration shocks. This results in an increase in the Gini coefficient (income inequality). These results concur with vast literature...

What are the effects of the minimum wage and productivity growth on the manufacturing sector output and employment growth? We find that a positive shock to the minimum wage shock results in an increase in the manufacturing sector output growth, employment growth, labour productivity growth, unit labour costs and a decline in hours worked. These res...

Do macroprudential tools impact activity in the manufacturing sector? Evidence in this chapter shows that the manufacturing sector output growth, employment growth, labour participation and labour absorption ratios increase in response to positive shocks to the loan-to-value (LTV) and repayment-to-income ratios (RTI). This means that the loosening...

Do credit booms, financial and credit cycles affect activity in the manufacturing sector? Between 2005Q1 and 2008Q3, credit growth, commodity price growth and nominal house price growth were in a boom period. The boom in nominal house price growth had preceded that of credit growth and other financial variables as it started in 2002. The results in...

What is the impact of the manufacturing sector output and sub-sector employment growth on the labour absorption and participation rates? We find that positive employment growth shocks in all the manufacturing sub-sectors result in an increase in the manufacturing sector employment growth, labour participation and absorption rates, albeit at differi...

What is the nature of the output-employment in the manufacturing sub-sector? The point elasticities and impulse responses of all the sub-sector employment growth rates increase due to the increases in the manufacturing sector output growth. However, the output-employment elasticities vary depending on the sub-sector analysed. Evidence shows that em...

Did the decline in the excess capital adequacy ratio (CAR or the countercyclical capital buffer) amplify the effects of monetary policy easing and credit cycles on activity in the manufacturing sector? Evidence in this chapter shows that gross fixed capital formation (investment) in residential buildings reached the highest level in 2007Q2 and this...

What is the role of business and consumer confidence in amplifying the transmission of positive shocks into the manufacturing sector? This chapter explores whether business and consumer confidence amplify the transmission of positive shocks effects of commodity price boom, credit growth boom, nominal house price boom episode, capital flows surge, h...

What is the impact of Chinese import penetration on the South African manufacturing sector? Are there import penetration regime effects that convey important information to policy makers? Evidence in this chapter shows that the estimates of the Chinese import penetration thresholds of 6 per cent and 2.48 per cent can be used as import guides to man...

What is the impact of market income concentration on the manufacturing sector? We find that the manufacturing sector output growth, investment growth and employment growth decline in response to a positive shock to the number of merger transactions notified with the Competition Commission. Similarly, the manufacturing sector output growth, investme...

Under various scenarios, the South African National Development Plan (NDP) projects that the manufacturing sector employment levels will range between 1.880 million and 2.289 million by 2030. In addition, the NDP targets to increase the labour participation rate to 65 per cent by 2030. Thus, the manufacturing sector has an important role to play to...

Do trade openness and import penetration regimes matter for the manufacturing sector output and employment growth in South Africa? Evidence indicates that both output and employment growth decline in response to positive trade openness and import penetration shocks. Trade openness and import penetration regimes matter for the manufacturing sector o...

How sensitive are the categories of imports by stage of production to the R/US$ exchange rate appreciations and depreciations shocks? Evidence shows that all the categories of imports are decline in response to the R/US$ exchange rate depreciation shock. The manufacturing sector output growth and employment growth decline in response to the exchang...

Did the increase in excess liquid assets of banks amplify the effects of tight macro-prudential tools on activity in the manufacturing sector? Evidence in this chapter shows that declines in excess liquid asset holdings (ELAH) of banks increased post-2009 resulting in an increase in credit to government and a decline in credit to the private sector...

What is the impact of commodity price booms and capital flows surges episodes on the manufacturing sector? We find that a positive shock to the commodity price boom and a capital flows surge episode result in an increase in the manufacturing sector output growth, employment growth, investment growth, labour participation and absorption rates. On th...

Are there changes in the impact of the South African and Chinese output-gaps as trade-openness moves from a low to a high trade-openness regime? Evidence is this chapter shows that the impact of the Chinese output-gap increases as the trade conditions move from a low trade-openness regime to a high trade-openness regime. The Chinese output-gap has...

Did monetary policy cycles propagate the impact of credit and financial boom cycles on activity in the manufacturing sector during 2005Q1 and 2008Q3? Evidence in this chapter shows that a decline in the repo rate leads to an increase in the manufacturing sector output growth and employment growth. Increased activity in the manufacturing sector in r...

What is the impact of positive global, advanced economies and emerging market trade uncertainty, and the R/US$ exchange rate volatility shocks on the manufacturing sector output, investment and employment growth? We find that heightened trade uncertainty shocks depress activity in the domestic manufacturing sector. The decline in investment growth...

Did monetary policy cycles propagate the impact of credit and financial boom cycles on activity in the manufacturing sector during 2005Q1 and 2008Q3? Evidence in this chapter shows that a decline in the repo rate leads to an increase in the manufacturing sector output growth and employment growth. The increase in activity in the manufacturing secto...

Do tight loan-to-value and repayment-to-income ratios amplify the effects of tight monetary policy cycles episodes on the manufacturing sector activity? Yes, they do. We find that the LTV and RTI tighten in response to a positive (increase) repo rate shock. The results indicate that the RTI tightens more compared to the LTV, meaning that banks tigh...

What are the effects of capital flow shocks on the domestic manufacturing sector? We find that the share of the manufacturing sector output and investment increase in response to positive shocks to the capital flows surge episode. However, the share of the manufacturing sector employment declines and the Gini coefficient increases. Furthermore, a c...

What is the role of positive electricity price shocks on the manufacturing sector output and employment growth? We find that the manufacturing sector output and employment growth decline in response to a positive shock to electricity price inflation. Prior to 2008 June the electricity price inflation increased at lower rates. We use 6.01 per cent t...

We find that the R/US$ exchange rate depreciation shocks push nominal wage and consumer price inflation in the same direction albeit at different magnitudes and timing. The direct impact of the R/US$ exchange rate changes has more impact on consumer price inflation compared to nominal wage inflation. Permanent exchange rate volatility shocks tend t...

Can accelerated land reform and increase in hectares planted policy tools help increase employment growth and reduce income inequality? Evidence shows that as supply side policy interventions, increase in hectares (area) planted and accelerated land redistribution lead to an increase in the agricultural sector output growth, investment growth and e...