TITLE:
The Macroeconomic Impact of Shocks in the US Federal Funds Rate on the Republic of South Africa: An SVAR Analysis
AUTHORS:
Moeti Damane
KEYWORDS:
US Federal Funds Rate, South Africa, SVAR, Impulse Response, Variance Decomposition
JOURNAL NAME:
Modern Economy,
Vol.9 No.4,
April
27,
2018
ABSTRACT: This study empirically
examines the influence of shocks in the US federal funds rate on the Republic
of South Africa’s output gap, consumer prices, 91-day T Bill rate and the Rand-US Dollar exchange rate from the first quarter of 1981 to the last quarter of 2014 with the use
of a structural vector autoregressive (SVAR) model. Shocks in the US federal
funds rate are found to have more of an impact on the South African inflation
rate relative to other domestic macro variables. Domestic developments were
found to play the most significant role in explaining the fluctuations of South
Africa’s macro-variables. In light of the SARB’s inflation targeting monetary
policy regime, it is recommended that it remains mindful of domestic
developments as well as movements in the US federal funds rate in order to
determine their upside risks to inflation before deciding on a policy stance.