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2017 | OriginalPaper | Chapter

2. The Inverse Transmission of Positive Global Liquidity Shocks into the South African Economy

Authors : Nombulelo Gumata, Eliphas Ndou

Published in: Bank Credit Extension and Real Economic Activity in South Africa

Publisher: Springer International Publishing

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Abstract

• Understand how the foreign repercussion process occurs as envisaged by the use of global liquidity injections
• Ascertain what evidence is available regarding the inverse transmission of global liquidity shocks into the South African economy
• Determine the differences in the impact of various rounds of G3 central bank liquidity injections via quantity and price measures on domestic credit, inflation and the policy rate
• Examine the role of domestic labor markets in the adjustments to external shocks
• Compare how the impact of the US Fed and ECB bank balance sheet shocks exert inverse transmission effects on the domestic economy
• Apply counterfactual scenarios to assess the impact of the inverse transmission and the role of commodity price dynamics

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previous chapter Introduction

next chapter The Impact of Capital Flows on Credit Extension: The Counterfactual Approach

Throughout the chapter, and elsewhere in the book, we refer to the US Federal Reserve, Bank of England and the European Central Bank as the G3 central banks.

It is possible that other domestic factors might have contributed to the observed trends in various macroeconomic variables. However, the assessment in this chapter is only geared towards exploring the role of various rounds of QE.

For further reading on other quantity and price measures of global liquidity see Eickmeier et al. (2014), Djigbenou (2014) and Choi et al. (2014).

For extensive discussion on the PCA see Johnson and Wichern (1992).

In this case, because global liquidity conditions are aligned to economic activity, they are purged of the macroeconomic effects by regressing the financial data on GDP growth.

For further reading on the technical aspects see Helbing et al. (2011), Mumtaz and Surico (2009), and Choi and Lee (2010) among others.

The sample is split in line with results that show that time-varying parameter models with slowly evolving coefficients might be partially affected by the pre-crisis period data (Weale and Wieladek 2014).

Appleyard, D. R., Field, A., & Cobb, S. L. (2008). International economics (6th ed.). Macgraw-Hill Irwin.

Carstens, A. (2015, April 20). Challenges for emerging economies in the face of unconventional monetary policies in advanced economies. Stavros Niarchos Foundation Lecture, Peterson Institute for International Economics.

Choi, W. G., & Lee, I. H. (2010). Monetary transmission of global imbalances in Asian countries. International Monetary Fund WP/10/214.

Choi, W. G., Kang, T., Kim, G. Y., & Lee, B. (2014). Global liquidity Momenta and EMEs’ policy responses (BOK working paper 2014–38).

Djigbenou, M. L. (2014). Determinants of global liquidity dynamics: A FAVAR approach.CR 14EFI04. 2014.hal-00956314.

Eickmeier, S., Gambacorta, L., & Hofmann, B. (2014). Understanding global liquidity. European Economic Review, 68, 1–18.CrossRef

Helbling, T., Huidrom, H., Kose, M. A., & Otrok, C. (2011). Do credit shocks matter? A global perspective. European Economic Review, 55, 340–353.

Johnson, R. A., & Wichern, D. W. (1992). Applied multivariate statistical analysis. New Jersey: Prentice-Hall.

Jordan, T. J. (2015, August 28). The impact of international spill-overs on inflation dynamics and independent monetary policy: The Swiss experience. Conference paper presented at Jackson Hole.

Mumtaz, H., & Surico, P. (2009). The transmission of international shocks: A factor-augmented VAR approach. Journal of Money, Credit, and Banking, 41(s1), 71–100.CrossRef

Uhlig, H. (2005). What are the effects of monetary policy on output? Results from an agnostic identification procedure. Journal of Monetary Economics, 52(2005), 381–419.

Vergara, R. (2015). Inflation dynamics in Latin America: A comparison with global trends and implications for monetary policy. Paper delivered at the Jackson Hole Annual Economic Policy Symposium August 27–29, 2015: Inflation Dynamics and Monetary Policy.

Weale, M., & Wieladek, T. (2014). What are the macroeconomic effects of asset purchases? (External MPC Unit discussion paper No. 42).

Title: The Inverse Transmission of Positive Global Liquidity Shocks into the South African Economy
Authors: Nombulelo Gumata
Eliphas Ndou
Publisher: Springer International Publishing
Book: Bank Credit Extension and Real Economic Activity in South Africa
Print ISBN: 978-3-319-43550-3

Electronic ISBN: 978-3-319-43551-0

Copyright Year: 2017
DOI: https://doi.org/10.1007/978-3-319-43551-0_2