Since the late ' fifties the term structure of interest rates has attracted considerable attention from both theoretical and empirical economists. While potentially a very fruitful area for the application of the traditional methods of economic enquiry, the term structure has proved itself to be a potent testing ground for these tools, and consequently a wide range of sophisticated analytic devices have been introduced, Despite this, no general agreement has yet been reached and a number of crucial questions remain unanswered. It is our task in this dissertation to extend the enquiry into the South African context in an attempt to shed some light on the determination of the term structure of interest rates. Intro., p. 1.

M.Sc. (Mathematical Statistics) / In this dissertation we investigate the South-African interest rate market by analyzing the Johannesburg Interbank Agreed rate (JIBAR) and the South-African three-month treasurybill rate. In particular, we assess the goodness-of-fit of some well known parametric singlefactor short rate models. In all the data sets investigated, we firstly found the interest rate increments to exhibit severe nonnormalities, which is also found to be the case in numerous other empirical studies. Secondly, we reject the model fit for the various parametric short rate models tested. Thirdly, we found strong evidence to support the presence of jumps in all the data sets and that interest rate increments mostly exhibit fat-tailed distributions. Consequently, we tested the ability of diffusion models, driven by Brownian motions, to generate jump induced nonnormalities via a nonparametric test of diffusion model fit. The nonparametric short rate model was rejected, i.e diffusion models are misspecified. Lastly, since diffusion models are misspecified we investigated whether a jump-diffusion model can be fitted to the data with higher accuracy. In conclusion we find that a jump-diffusion model, namely the Vasiˇcek jump-diffusion model, can adequately generate the jump induced nonnormalities present in each of the data sets.

Short-term interest rates are key economic variables, yet few people understand how these rates are determined. This confusion extends to the theoretical level. In neoclassical interest-rate theory for instance, the interest rate is determined by the supply of and demand for loanable funds. Contrary to this view, the Post Keynesian approach suggests that the interest rate is determined by central banks as a key policy variable in pursuit of its monetary policy objective/s. This dissertation examines how the current and previous Governors of the South African Reserve Bank deliberately used short-term interest rates to exert an influence on the general level of short-term interest rates. In doing so, they implicitly adopted the Post Keynesian approach. This view is shared by most central bankers today, giving credence to the widespread recognition that short-term interest rates are determined as a policy variable and not by impersonal market forces. / Economics / MCOM (ECONOMICS)

Short-term interest rates are key economic variables, yet few people understand how these rates are determined. This confusion extends to the theoretical level. In neoclassical interest-rate theory for instance, the interest rate is determined by the supply of and demand for loanable funds. Contrary to this view, the Post Keynesian approach suggests that the interest rate is determined by central banks as a key policy variable in pursuit of its monetary policy objective/s. This dissertation examines how the current and previous Governors of the South African Reserve Bank deliberately used short-term interest rates to exert an influence on the general level of short-term interest rates. In doing so, they implicitly adopted the Post Keynesian approach. This view is shared by most central bankers today, giving credence to the widespread recognition that short-term interest rates are determined as a policy variable and not by impersonal market forces. / Economics / MCOM (ECONOMICS)

This thesis measures the extent to which the interest rate falls after an increase in the money supply. Even though the South African Reserve Bank has as a commitment, a goal for the inflation rate to vary between a prescribed band, it still needs to be able to use active monetary policy if economic conditions require intervention. To this end it is of interest to measure the number of quarters for which interest rates remain low after the liquidity of the macro-economy improves. In the monetary literature (for example Melvin (1983)) there are methods that have been used to measure the duration of the decline in the interest rate. These models have not to our knowledge been tested using South African data. We find evidence that the monetary authorities can induce falling interest rates for approximately one quarter using appropriate monetary policy. This result was subjected to testing under alternative assumptions concerning the structure of the error term and found to be robust. This thesis argues for the first time, that there may not be a set pattern to the time path of the interest rate, and inflationary expectations may cause the interest rate to rise, however, this rise is not confined to one uniform adjustment over time, but may occur in separate discrete adjustments. This theoretical innovation and the possibility of an identification problem suggested we estimate another more general model of interest rate determination The second model we estimate is that of Mehra (1985). After a careful analysis of the data to ensure that there are no major statistical problems with the South African data, we find that inflationary expectations result in a higher interest rate especially in times of higher expected inflation. Thus, one benefit of the Reserve Bank's current policy that aims for a band between which the rate of inflation (appropriately defined) must fall, is an improved operation of the transmission mechanism. Therefore, if intervention is required, say, if the economy suffers a severe supply shock, then monetary policy can be effective. / Thesis (M.Com.)-University of Natal, Pietermaritzburg, 2001.

M.Com. (Financial Economics) / Recently, there has been a growth in the bond market. This growth has brought with it an ever-increasing volume and range of interest rate depended derivative products known as interest rate derivatives. Amongst the variables used in pricing these derivative products is the short-term interest rate. A numbers of short-term interest rate models that are used to fit the short-term interest rate exist. Therefore, understanding the features characterised by various short-term interest rate models, and determining the best fitting models is crucial as this variable is fundamental in pricing interest rate derivatives, which further determine the decision making of economic agents. This dissertation examines various short-term interest rate models in continuous time in order to determine which model best fits the South African short-term interest rates. Both the linear and nonlinear short-term interest rate models were estimated. The methodology adopted in estimating the models was parametric approach using Quasi Maximum Likelihood Estimation (QMLE). The findings indicate that nonlinear models seem to fit the South African short-term interest rate data better than the linear models

A research report submitted to the Faculty of Management, University of the Witwatersrand, in partial fulfilment of the requirements for the degree of Master of Management (in the field of Public and Development Management). / Many debates have been waged about the effect of the interest rate ceilings on the provision of financial services to small businesses. It has been considered as one of the major constraints in small business access to capital and it is also considered a major inhibitor of small business development. The present study attempted to determine whether interest rate ceilings should be undertaken or not, and how in a South African socio-political context this would help small business development. Concomitantly, it was considered how the interest rates affect small businesses according different purposes, size and terms of loans. A case study method was used to pursue this research. The case study of Mamelodi Township (Pretoria) and Kildare/Jonkllanqa village (Mhala District - Northern Province) were undertaken. Open-ended interviews with borrowers and financial institutions (providers) were conducted. The result of the interviews was analysed and reinforced with an analysis of national and international secondary literature. One of the main findings of the research was that interest rates ceiling are necessary and substantial in helping small business development. It was established that interest rate ceilings have to be considered in a flexible manner, accordlng specific conditions of small business activity. It was also concluded that interest rate ceilings have to be a consequence of a regulatory framework which enables small business access to capital, and, thus, development of their local community. The result of the research likewise, has indicated that for small, short term, working capital loans, the impact of interest rates on borrowers is smaller than for larger, longer term borrowers. The effect of the circulation of resources in a community in the case of a lower level interest rates deserves more investigation but there are primary indications of some positive impact on. / Andrew Chakane 2019

Research report submitted to partially fulfill the Master of Management in Finance and Investments to the Faculty of Commerce, Law and Management at the University of Witwatersrand March 2017 / This study empirically examines whether the capital structure for natural monopolies (parastatals) dynamically responds to macroeconomic conditions. It further examines whether the balance sheet channel theory holds for this industry sample. The study adopts a double sampling approach from the population of water boards in South Africa (SA), which raise their capital in open financial markets. A quantitative research approach is adopted with a descriptive design to achieve relevant deductions. Panel techniques are used in the descriptive design for the regressions. The study finds that leverage partly dynamically responds to macroeconomic conditions. Furthermore, the evidence shows that inflation is an exception that has no significant relationship with leverage. The balance sheet channel theory is found to hold for water boards that access capital in open financial markets. Specifically, empirical evidence shows that changes in the interest rate have a delayed impact on the companies’ characteristics, including capital structure. Overall, our evidence suggests that water boards in SA need to consider the benefits of linking financial policies to the business cycle and that their policies should consider the delayed effect of interest rate changes. / MT2017

M. Comm. / Although there has been several work done on monetary policy and inflation in South Africa, this dissertation is intended to add and expand on the existing literature on the subject with data dating back to 1970. The dissertation was inspired by recent international research that has indentified that a large Bayesian VAR model normally performs better than the normal SVAR model. Given that there has already been differing conclusions in literature on whether interest rates are effective as a tool to control inflation, there is therefore an opportunity to assess monetary policy using a different and more robust modelling framework. The choice of a sample is informed by the fact that prior to inflation targeting and within the period under consideration; interest rates remained a core factor in monetary policy management. Some of the literature will be discussed in detail in chapter 2. This dissertation will introduce the large BVAR model with 14 variables in the South African economy. In comparison, the SVAR model suffers from the curse of dimensionality that is eliminated by using more variables with the Large Bayesian VAR with the response functions of all 14 variables. The objective is therefore to determine whether interest rate changes in South Africa have a meaningful and desired effect on inflation. A substantial amount of recent literature was done within the environment of inflation targeting; however, our study intends to measure more the responsiveness of interest rates and other macro variables to monetary policy. The period of inflation targeting in South Africa provides more useful data and evidence on the responsiveness of the macro variables given the direct policy approach it represents versus the previous regime and hence it is covered in more detail in the dissertation. We also assess, in the process, the main drivers behind inflation in South Africa, in an effort to establish whether the country suffers from cost- push or demandpush. The type of inflation should also assist in providing recommendations on the appropriate response to inflation.

This study investigates whether stock prices in South Africa are influenced by macroeconomic variables, and furthermore, the effects of financial crises on stock prices. The relationship between stock prices and the macroeconomy is a particularly important issue for investors, since a thorough understanding of such a relationship is likely to yield profitable or risk mitigating opportunities. Using monthly data for the period 1995 to 2010 the study focused at a macro level using the FTSE/JSE All Share Index, and at a micro level using sector indices. These included the construction and materials, financial, food producers’, general retailers, industrial, mining and pharmaceuticals indices. The Johansen and Juselius (1990) multivariate cointegration approach was employed, along with impulse response and variance decomposition tests to address the issue. The results showed that macroeconomic variables do have a significant influence on stock prices in South Africa. Also, the influences of these variables were found to have an inconsistent effect across the sectors under investigation. For example, inflation was found to negatively influence the All Share Index, but impacted the industrial index positively. These inconsistent influences on the various sectors were seen to have important diversification implications for investors. The impact of past financial crises proved to be significant on certain indices, however, indices such as that of the pharmaceuticals sector was found to be largely unaffected by such crises. The findings of the study were discussed through an investor’s perspective, and recommendations on investment decisions were given. The limitations of the study were such that certain results may have been influenced by a mis-specification of variables, particularly the Treasury bill rate.