South Africa Monetary Policy Essay

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CHAPTER ONE: INTRODUCTION AND BACKGROUND

1.0 INTRODUCTION
Monetary policy and the yield curve have long been a subject to interest by researches and the debate has generated many, but, diverse conclusions. Monetary policy forms part of overall economic policy pursued by the monetary authorities independently of the government. In South Africa it is called the South African Reserve Bank (SARB) due toVan der merwe and Mollentze (2010). The monetary policy is the control of monetary variables such as monetary aggregate or interest rates to achieve economic growth by ensuring price stability, employment growth, interest rates stability, financial market stability and stability in the foreign exchange market Mishkin (2009), in south Africa the …show more content…

However, Nel’s study only covers the period between 1974 and 1993 and is outdated since major structural changes took place in South Africa's economy since 1994.

Moolman (2002) only uses the slope of the yield curve predict recessions and does not compare its performance with other financial indicators to see if the yield spread does better. Several studies in other countries show that economic indicators like stock prices, money supply growth, leading economic indicator indices, spreads between government and commercial paper and foreign term spreads also possess useful information for predicting the business cycle (see Dueker, 1997; EstreJla and Mishkin, 1998; Atta-Mensah and Tkacz, 1998; Moneta, 2003). It would be interesting to find out if such variables perform better than the yield in South Africa. One other limitation of Moolman's study is that it does not cover one crucial period (2003) when the yield curve

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