Working Paper – WP/19/01: Reaching for the (r)-stars: estimating South Africa’s neutral real interest rate

Publish Date: 2019-02-19
Category: Working Papers
Author: Lauren Kuhn, Franz Ruch, and Rudi Steinbach

The global financial crisis (GFC) saw real interest rates fall to all-time lows as central banks aimed to stimulate economic activity. The effectiveness of such low real rates depends, to a large extent, on the neutral real interest rate — popularly referred to as r-star. Monetary policy is considered expansionary when real interest rates are below r-star, and vice versa. However, the challenge arises from the fact that r-star is unobservable. This paper estimates r-star in the spirit of the popular Laubach-Williams (LW) methodology, but adapts their approach to capture the dynamics of a small open economy. This is achieved by incorporating additional drivers of the neutral rate, such as domestic net savings and investment, South Africa’s country risk premium, and the potential growth rate of our trading partners. In addition, foreign linkages like the exchange rate and international commodity prices are included to capture the impact of developments in the rest of the world on South African growth and inflation. The results suggest that South Africa’s r-star has fallen less than in advanced economies — from an average of 4.4 per cent from 2000 to 2006 to 1.9 per cent in 2017Q4.

 

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ASSA Life and Non-life Insurance Presentation

Publish Date: 2019-02-14
Category: PA Insurance Special Reports

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Information notice on the official gold and foreign exchange reserves of the South African Reserve Bank as at 31 January 2019

Publish Date: 2019-02-07
Category: Information Notice
Author: Financial Markets

This notice provides detail of the US dollar equivalent of the level of the South African Reserve Bank’s (SARB) official gold and foreign exchange reserves, Special Drawing Rights (SDRs) and foreign currency deposits received from customers published today in the SARB’s Statement of Assets and Liabilities as at 31 January 2019.

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SARB joins Global Financial Innovation Network

Publish Date: 2019-01-31
Category: Media Releases

The South African Reserve Bank (SARB) is pleased to announce that it is joining the Global Financial Innovation Network (GFIN) as a member. This is part of the SARB’s journey to support responsible financial innovation for the benefit of all South Africans. The GFIN, as a network, provides an efficient conduit for innovative firms to interact with regulators and to help them navigate between countries as they look to scale new ideas in the interest of consumers. Joining the GFIN will provide the SARB with the opportunity to share and gain insights from its fellow regulators on experiences in enabling innovation.

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