Should monetary policy in South Africa lean against the wind by targeting the financial cycle?
Malibongwe Cyprian Nyati
Recently, several studies have argued about the interactions of the real economy and financial system, as well as the importance of financial cycles in business cycle fluctuations. To date, there exists near consensus among central bankers, economists, and other scholars that the financial cycle is an important source of business cycle fluctuations. This has raised the question of whether monetary policy should respond to financial instability and/or imbalances. As a result, we asked the following questions: Should monetary policy lean against the wind by targeting the aggregate financial cycle in South Africa? And what is the role of monetary policy in minimizing financial imbalances and instabilities in South Africa? The present article aims to provide answers to the above-mentioned question. Through the adoption of a multiple-equation generalized method of moments and structural vector autoregressive approaches, this article simultaneously estimates and compares both the finance-augmented and the conventional Taylor rules. It is shown that the South African Reserve Bank has considered developments in the aggregate financial cycle in setting its policy rate. Overall, there is clear evidence to conclude that the South African Reserve Bank can lean against the wind by targeting the aggregate financial cycle, but only as a genuine augmentation not as a fully flagged objective. This article adds new evidence to the South African literature on the prevailing debate of whether monetary policy should respond to developments in the financial system.
Year of publication: |
2024
|
---|---|
Authors: | Nyati, Malibongwe Cyprian |
Published in: |
Economies : open access journal. - Basel : MDPI, ISSN 2227-7099, ZDB-ID 2704214-5. - Vol. 12.2024, 6, Art.-No. 145, p. 1-20
|
Subject: | business cycle | finance-augmented Taylor rule | financial cycle index | monetary policy | multiple-equation GMM | structural vector autoregressive modelling | Geldpolitik | Monetary policy | Südafrika | South Africa | Konjunktur | Business cycle | Finanzkrise | Financial crisis | Taylor-Regel | Taylor rule | VAR-Modell | VAR model |
Saved in:
freely available
Type of publication: | Article |
---|---|
Type of publication (narrower categories): | Aufsatz in Zeitschrift ; Article in journal |
Language: | English |
Other identifiers: | 10.3390/economies12060145 [DOI] |
Classification: | E44 - Financial Markets and the Macroeconomy ; E61 - Policy Objectives; Policy Designs and Consistency; Policy Coordination ; G21 - Banks; Other Depository Institutions; Mortgages |
Source: | ECONIS - Online Catalogue of the ZBW |
Persistent link: https://www.econbiz.de/10014636050
Saved in favorites
Similar items by subject
-
Monetary policy transmission over the leverage cycle : evidence for the euro area
Bräuer, Leonie, (2020)
-
Financial sector-output dynamics in the euro area : non-linearities reconsidered
Schleer, Frauke, (2014)
-
Financial sector-output dynamics in the euro area : non-linearities reconsidered
Schleer, Frauke, (2013)
- More ...